Inside Silicon Valley’s Innovation Culture

You can listen to the full episode or read the transcript below. You can also listen to past episodes of Innovation Answered on Stitcher, Spotify, Apple Podcast, and our website. Special thanks to our friends at Planbox for sponsoring this episode.

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Steve Wozniak: You have to think way out of the box.

Faisal Masud: The Valley culture’s all about anything’s possible.

Scott Kirsner: They think about a lot of different modes of innovation that can get them to that future.

Kaitlin Milliken: Hey, you’re listening to Innovation Answered, the podcast for corporate innovators. In each episode, we ask a central question about the things that make change hard at large companies. Then we get answers from experts about how businesses can overcome these challenges and make an impact. I’m Kaitlin Milliken from Innovation Leader.

This is our last episode of the season, so we wanted to find out: What makes FAANG more innovative than other companies?

I know FAANG sounds like a terrifying super villain group. But for those of you who don’t know, it actually stands for Facebook, Amazon, Apple, Netflix, and Google. A term coined by CNBC’s Jim Cramer, FAANG are the market’s five most popular and best performing tech stocks.

These companies have also become shining beacons of innovation and — despite controversy — other companies aspire to emulate FAANG. How can businesses change the way people consume content like streaming on Netflix? Or create new, game changing products like the iPhone? How do you stay ahead of technology trends, stay in tune with consumers, and stay on top? You break the rules.

Steve Wozniak: I believe that a little bit of misbehavior and trying to go beyond the rules and boundaries of a strict maze that we live within is really critical to creative thinking. Because the most creative thinkers that I need — the ones who create the products that we love to this day and start the companies that became so big and important in technology — almost all of them go back to their days of playing little pranks and fooling people, trying to get further into a computer than you should be.

Kaitlin Milliken: That was Steve Wozniak, co-founder of Apple at the 2016 Innovation by Design Summit. During his on stage interview with Innovation Leader Co-Founder Scott Kirsner, Woz talked about how rule breaking and creative thinking allowed for innovation at Apple.

Steve Wozniak: So I didn’t follow anything that were in books. All the programs that were in books. I wrote my own book is what I call it by coming up with my own ideas from knowing a few little parts. How could I combine them to make something? I made by scratch, I wrote my own book every time.

Color’s a good example. The Apple II computer was going to change the world. And the Apple II computer was the very first time ever that arcade games were color and programmable. It wasn’t in any book. It didn’t matter if it wasn’t in any book. All that mattered to me was it works, every single TV is gonna display this color. So you have to think way out the box it doesn’t have to be … I don’t want it to be done the way it has been done before. I want to come up with the best solution for my need, what I’m building.

Kaitlin Milliken: And of course the rest is history. The Apple II was followed by a string of innovative Apple products like the iPod, the iPhone and the iPad.

But not everyone is okay with throwing the rulebook out the window, especially when company procedures have been developed over dozens of decades. The kinds of behaviors that were tolerated — even encouraged — at FAANG during their garage days seem so far removed from what happens at most established, public companies. So what can innovation teams do to be more like FAANG?

To find out, we sat down with Alphabet Inc.’s Faisal Masud. We’ll be back with Faisal after this break.

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And we’re back with Faisal Masud. Faisal has experience both inside and outside of FAANG. He currently is the Chief Operating Officer of Wing, Alphabet Inc.’s drone delivery project. He was a former advisor to GoogleX and spent six years working at Amazon. He also spent four years at Staples, as the company’s Chief Technology and Chief Digital Officer.

So you’ve worked with companies like Amazon, eBay, GoogleX. But you’ve also been at more traditional brands like Staples. What is it about tech companies that’s different than these traditional companies?

Faisal Masud: Tech companies are inherently more, of course technology focused, but also much more consumer focused out the gate because they’ve had to really visit customer issues to be born out of that. It sort of differentiates them because they’re thinking about the next couple years. Versus traditional companies are most likely to be bound by quarter-to-quarter rules. And that’s probably one distinction that I’ve seen across the traditional landscape that I know of.

Kaitlin Milliken: You mentioned customer focus being one difference. Another difference we often hear is in regards to culture. What aspects of Silicon Valley culture encourage or discourage innovation?

Faisal Masud: On the encourage side I would say the Valley culture’s all about, anything is possible. And anything’s possible as a service. That really takes down all the barriers for thinking about the impossible things out there. I mean if you look at Airbnb and others, who could have thought that you’d be living in someone else’s house and paying a small fee to stay there? Or sitting in someone else’s car to be driven around? Those all were triggered out of basic customer need and necessity for those who didn’t want to pay extra, or didn’t want to have to get their own car.

When you look at that environment versus even the rest of the world, the Valley operates slightly differently. It’s about the network, knowing the right people and being able to solve big problems together.

Kaitlin Milliken: A large number of our members are located outside of the Valley. Maybe they have an accelerator there but their headquarters is somewhere else. What can these companies do to encourage more innovation, entrepreneurship, and risk taking?

Faisal Masud: I think there’s a pretty good playbook that is out there today that if you look at a lot of the companies, the unicorns being born out of the valley, they can revisit and look at how they can implement some of those thought processes. That said, there are some great companies out of the east coast that have done really well.

I would say talent and culture, and the ability to be okay with failure is probably the biggest to look at in terms of how you can operate in a way where you can be at the same pace and not have to worry about, “Are you behind? Are you ahead?” As long as you have the right team and the right motivations to have the product that you’re trying to get built right, I think anything’s possible.

Kaitlin Milliken: Where should you go searching for that talent? Is it something that companies should look for within the people that they already have? Or is it about acquiring new folks and attracting new people to your company?

Faisal Masud: It depends. You know a lot of traditional companies struggle to get talent that’s already apart of large technology organizations because it’s hard to recruit from there. So sometimes you go through the path of acquisitions, so the teams come with that. Other times you have to go to where the talent is. So if they’re based in the Bay Area, then you own and operate something in the Bay Area to be able to get that. If their based in Boston or Cambridge, then you open something here. Because the days of moving the talent to you versus you moving to where the talent is, I think is changed. It used to be much more employer driven, it’s a lot more employee driven.

Kaitlin Milliken: Changing gears, Apple and Amazon, two of the tech giants, are trillion dollar companies. But these businesses are relatively young compared to more established brands that have been around for decades and even a hundred years. Will these young companies likely become less innovative as they age?

Faisal Masud: Every company is going to go through that. It’s how they handle that is what matters. And if they continue to think from a customer lens, it’s going to be hard for them to be plagued by 100-year-old company issues. But it’s very hard to imagine that Amazon and others could stay at the same pace for 100 years. That’s probably not possible.

That said, if the values and the culture of the organization are around always obsessing over customers and always innovating, they can at least maintain some level of momentum versus what we’ve seen in traditional companies where, you know, the GEs and IBMs really struggling to keep pace. Yeah they can probably avoid some of that, but probably not all of it.

Kaitlin Milliken: A lot of tech companies have really visionary founders, Jobs and Bezos are two great examples. But can tech companies continue to be innovative once the founder is gone?

Faisal Masud: You know, I’m very much driven by founder led companies. I feel if you look around you, Netflix, Amazon, Airbnb, others. Founders have a passion for their brand and the brand that they produced and typically have a much longer lens on the life cycle of their product, versus the quarter to quarter. So, yeah when a founder leaves there’s definitely an impact.

I mean if you look at what happened to eBay after the founder left, and they had a good run for a short period of time but then soon thereafter it was all about optimizing for the short term. So yeah, it is something that worries me with organizations.

Kaitlin Milliken: Are companies likely to take a risk and pick another innovator to replace the CEO, or does the trouble lie in that they usually choose and executor to fill that position?

Faisal Masud: It really depends on the situation, if the organizations motivation is to exit or go public… It really depends, right? Which path their going? But typically it’s very hard to find the same sort of mindset as the founder. You can probably get really close and perhaps promote from within. But depending on the motivations of the organization and the board, you can sometimes get lucky.

I mean, I feel like Uber’s probably a good example. Hiring Dara after Travis seems like a really good decision, considering that is not a founder led company anymore but still doing really well.

Kaitlin Milliken: Some tech companies are really known for transformational change, we see that word thrown around a lot. Is transformational change good for all companies or only for a handful?

Faisal Masud: For any organization, transformation is a day-to-day thing. You have to be evolving every single day, every single week. And it comes down to even the way you operate inside of the office or don’t come to the office, and you’re remote. I mean those are just things that are evolving all the time.

So I see transformation. When companies try to do large transformations, it concerns me because they’re basically saying, whatever they did before isn’t working. Which is great, but at the same time, why was it left untouched for so long that now this complete overhaul is needed? So I believe that transformation should be more iterative and consistent and persistent across the organization to be more impactful. Large scale changes like that typically with legacy workforce is not easy.

Kaitlin Milliken: Would you say that you get there through the 20 percent time rule, or is that having members of the business unit who work on those projects, or is it something else?

Faisal Masud: I think it probably starts from the top. So the executive team has to demonstrate the values — the existing values or the re-iteration of the same values — and it sort of has to cascade down the rest of the organization. Because if the rest of the organization doesn’t see that the leadership is following true to the values and culture, it’s very hard to convince other people to do that. So I think as much as you can have a bottom’s up cultural impact, it’s very powerful if its tops down and the employees embrace what you’re doing.

And sometimes you have to make the hard decision, if they don’t embrace, then they don’t embrace, and you have to do what you have to do to move the organization forward.

Kaitlin Milliken: So to close out the interview, is there any advice that you’d give to innovators at these large companies?

Faisal Masud: Find like minded people in the organization that have a similar sense of urgency for the customer, and form a communication process with those folks to drive big changes forward. It’s not going to be easy to collaborate with so many people in large orgs, but you can’t do it alone. You just don’t scale. You’re so much more powerful with a bigger team behind you than you are trying to do it on your own. And trying to get leadership alongside with you is probably going to be the biggest band for the buck.

Kaitlin Milliken: From Silicon Valley and beyond, the larger the organization the more important collaboration becomes. And with a network of champions, your team can drive innovation wins.

For more takeaways on innovation in the tech world, I talked with Innovation Leader’s Scott Kirsner. Before Scott was our publication’s Editor and CEO, he covered business for Fast Company and Wired in the late 90s and early 2000s. During that time, Scott talked to some of the FAANG founders, including Amazon CEO Jeff Bezos.

Scott Kirsner: So my favorite Jeff Bezos story is, I was really interested with gift registries in the early 2000s when online gift registries started to become a thing. I just thought the social dimension was really weird, that you would create this list of like, “Here’s 50 things that I want from this website,” and then you’d send it to your mom, or your girlfriend, or whatever.

And so I pinged Amazon, and I was like, “Can I talk to Jeff Bezos about gift registries?” And at the time, they were still trying to drive revenue and promote Amazon. So I got on the phone with him for like a half hour to talk about gift registries, and at the end of the interview, I was like, “Jeff, I have this weird idea which is, do you have a gift registry?” And he’s like, “Yeah, I set one up.” I was like, “Well I set one up too. So how about we buy each other gifts?”

And so as part of the story, I picked something from his gift registry and bought it from him, and he picked something off my gift registry. I like the idea that Jeff Bezos still has something at his house that I got him for Christmas.

Kaitlin Milliken: [LAUGHS] That’s crazy.

Scott Kirsner: Yeah.

Kaitlin Milliken: I can’t believe you’ve actually talked to Jeff Bezos.

Scott Kirsner: Yeah, twice.

Kaitlin Milliken: That should be the lede of the podcast.

Scott Kirsner: Yeah.

Kaitlin Milliken: So you’ve talked to Jeff Bezos twice, and Steve Wozniak, and other founders. How do they think about innovation?

Scott Kirsner: I mean, Woz is really interesting because he was there at the creation of Apple Computer, and he’s a classic Silicon Valley hacker. And I remember really clearly talking to him at an event where we were having a conversation on stage, and he talked about in innovation, you can’t always play by the rules. You can’t always set these strict boundaries of what you’re trying to do. And so he’s a real advocate of you got to break some rules, you have to have fun, there has to be a spirit of play, and a spirit of rebellion a little bit if you want to have an innovative organization. And that was a part of the early days of Apple.

When Steve Jobs went off to develop the Macintosh, they were kind of the pirate team within the bigger Apple company. So I love that idea from Woz of you know you got to break a couple eggs, you have to break the rules if you’re trying to make new stuff happen. Some of them are gonna fail.

I think Bezos is someone who, from the very early days, had this idea that there’s nothing that Amazon can’t do. That sense of possibility of like, “We’re not just creating a bookstore, but oh, we could sell CDs and DVDs too.” And then when Amazon Web Services started, looking at that as an opportunity of, “Hey, we’re not really a tech company or a software company, but we could be.” And I think a lot of founder and a lot of early employees like Steve Wozniak are just enchanted by that idea of. “What could we be doing? I saw this opportunity, couldn’t we go and do that? Nobody’s taking advantage of it, why not us?”

Kaitlin Milliken: Is that a mindset that’s more unique to these young Silicon Valley, or I guess Seattle-based, tech companies. Or is that thinking also alive at corporate innovation hubs?

Scott Kirsner: Well, I think if the question is, “Why not us? You know, there’s an opportunity in the market, why couldn’t we be the ones to pursue it?” A lot of big companies are full of people who can explain to you why we shouldn’t do that. Why our brand shouldn’t be applied. “We’re a financial services company, we shouldn’t be in the bitcoin and cryptocurrency space.” And so that having a lot of people who say no, and having a CEO who doesn’t make it okay to say yes is something you see in a lot of big, established companies.

And many of these Silicon Valley companies like Facebook and Netflix and Google, still have the founders around and they’re people who do understand possibility and white space and if you move quickly you can really be a huge player in a market.

Kaitlin Milliken: Speaking of founders and CEOs, I know that you’ve talked to Reed Hastings from Netflix and have covered the company since its early days, back when it was all about delivering DVDs to your house. Can you talk a little bit about how that company has grown to compete with the big entertainment players like Disney and NBCUniversal?

Scott Kirsner: Well, Netflix initially said, “We’re an alternative to Block Buster. Block Buster has all these late fees for DVDs and video tapes, and we’re not going to have late fees. We’re just going to charge you the subscription and get all the DVDs that you want from us.”

But the first time I interviewed Reed Hastings, he talked about how the future was going to be digital delivery. And this was in the 2002-2003 time frame. But they weren’t doing it yet. And then I went back and I looked at some notes I had from an interview I did in 2005 with Reed Hasting. And other companies were starting to create these digital download website, where you could buy movies. There was one called Movielink, there was one called CinemaNow. Netflix wasn’t doing it yet.

So he had the vision that this was going to happen. He didn’t feel like they needed to be first. He wanted to wait for the moment when enough consumers were going to be ready for downloading, you know. Enough people would have high speed access, and also that they could get the content that people would care about. And that was really a battle to make sure that you could put together a library of digital content that you know would make Netflix as we know it today a really appealing customer proposition. So you don’t always have to be first, you just have to have that vision of, “Here’s where things are going. We want to be there when it all coalesces. We want to be in the center of it.” But you don’t have to move first.

Kaitlin Milliken: So one thing Netflix could have done — obviously they didn’t, they started their own streaming platform — was acquire one of the Movielinks of the world that had already existed. And we see a lot of these tech giants really take advantage of M&A to be more innovative. Can you talk a little bit more about that?

Scott Kirsner: Well, yeah it’s interesting. I think a lot of times they try to play it both ways. They say, “We’re going to build something ourself, but if that doesn’t work we’re going to acquire it.” And so like Google and video is a good example. They built their own competitor to YouTube when YouTube was still an independent startup. Google saw that people want to download videos, they may pay for some of these videos, they may want some of them to be free. And they built, I think it was just called Google Video. And it didn’t take off. People liked the YouTube experience better and then eventually Google acquired in YouTube.

They did something similar with Android. People think today that Android was something Google just built internally, but Android was initially a really small startup company, a 15 or 20 person startup company, that no one ever heard of. And Google just bought it so quick. They said, “Mobile devices are going to be important.” Before we all owned iPhones and before there was an Android phone, they said, “This is a platform we need to be on.” So again the vision thing of like, “The desktop experience is going to involve into a mobile experience. Google wants to be there. There’s this startup that wants to build a mobile operating system that they haven’t even launched, and we’re gonna buy them really quick and build our whole mobile strategy around that.”

Kaitlin Milliken: So you mention Google. Innovation Leader has visited Google in a few different locations. Were there any noticeable differences that made the environment more innovative?

Scott Kirsner: Once you go to a couple Google Offices, I think we’ve done events in Atlanta, New York, and Mountain View, and you start comparing Google Offices. Oh and Cambridge too, right down the road from our Boston headquarters here. You start comparing them. You’re like the TripAdvisor reviewer of which are the nicest Google offices.

But the one thing that’s really consistent among all of them is, there’s fantastic food. The office spaces are beautiful. It’s not cubicle land. There’s not fluorescent lighting overhead. They’re really thinking about, “How do we create a workspace that can attract amazing talent, and underneath that make it okay to work nine, ten, eleven, twelve hours a day?”

Your social life — and particularly you see this in the Mountain View campus — your social life, it’s like a continuation of college or grad school for a lot of people. The campus has a swimming pool, you know. It has volleyball nets. You could think you were at Stanford, and it’s about two things: It’s about attracting the best talent, winning the talent wars, and getting people to spend a lot of time at work.

Kaitlin Milliken: So that’s a really different mind set then what you see at traditional companies. What can older more traditional companies learn from these young tech giants?

Scott Kirsner: Well part of it is that I do think office design, workspace design, is changing and it is important. And when you plunk someone into a cubicle which looks like its out of the movie Office Space or Dilbert, you’re just gonna not get the top talent in 2019.

I think that’s one thing that you can learn. I think that these companies are always thinking about training and development of their employees and let’s invest in people learning new skills. Like I don’t know if you’ve seen this, but Google, even in their restrooms, you’re sitting in the restroom, and you close the door, they’ll have a piece of paper framed on the door that’s like, “Here’s a little coding tip for you.” While you’re sitting in the restroom you can read one page or maybe sometimes they have two pages next to each other to give you some tips about quality control of your coding. So that’s kind of crazy.

And then, they think about a lot of different mechanisms or modes of innovation that can get them to that future that they envision. And it’s not just acquisitions, it’s not just building it yourself internally, some of it can be venture capital, Google has GV, it’s venture capital arm. And then sometimes its setting up what Lockheed Martin did decades and decades ago with their skunkworks. It’s Amazon saying, “We’re gonna put a group of people into an office that’s not in Seattle, not near headquarters and tell them to develop the electronic book of the future,” which led to the Kindle.

Kaitlin Milliken: Do you have examples of any kinds of companies that have successfully implemented something from the Googles, Facebooks, Apples, and Amazons into their own organizations?

Scott Kirsner: Yeah, we’ve seen some companies take what Google used to call “20 percent time,” one day a week that is discretionary time to work on side projects. I think very few have said it’s going to be a day a week, they’ve tried to create the hackathon once a quarter where people take a day off and work on team based projects, and build new things. Google has this thing called the Google Garage which is a prototyping, maker space that employees can use. We’ve seen other companies, like Northrop Grumman in Southern California, created a maker space that’s really about giving employees a place to build side projects and also learn to use a lot of new prototyping tools and technologies.

Amazon of course has the famous two pizza rule for their meetings. You know, teams should be small enough that two pizza could feed them. And we see a lot of companies trying to emulate that so you don’t have these giant meetings with 18 or 19 people around the table, and you just talk and talk and talk and don’t actually do anything.

Kaitlin Milliken: Another defining trait of some of those younger tech companies is that they’re working on those transformational projects, something that’s different from the core business, moving into a new field. But can more established companies that focus more on adjacent and incremental innovation ever emulate that sort of FAANG level of success.

Scott Kirsner: I think it requires the vision and commitment to say to investors, “You know, hey, we have… This is our portfolio of innovation projects or research projects and some of them are incremental, and some of them are adjacent, but some of them are really transformational and further out. And we want to be around for 20 years. So we need you, Wall Street and the analysts and the investors, to allow us to invest over that time frame.”

And I think not every CEO kind of has the guts to do that. And you see it. People think its okay for Amazon to do it and it’s okay for pharma companies to have that sort of long term investment because it takes a long time to develop drugs. But I think more companies, if they have CEOs that are willing to defend it and are willing to defend making that long-term commitment can do it. And when you look at the success of the FAANG companies, you’d say maybe more companies should do it as opposed to just looking at today’s product line or today’s stores and think like, “How do we raise the price? How do we increase the profit margin without doing anything really transformational?”

Kaitlin Milliken: So we talked a lot about what traditional companies can learn from the Silicon Valley. But what have Silicon Valley tech companies and Amazon learned from those more traditional companies?

Scott Kirsner: All of these companies are hiring people with experience at more traditional companies. Marketing is something that they’re probably learning a little bit about that mass marketing. Kind of, how do you build a brand over time? How do you get the customer to love that brand and associate that brand? For some of these companies like Facebook and Amazon, notably, that’s been a big challenge in the last year or two, that kind of perception management.

Oh, and also lobbying to. You know, I think these are companies that many of them in their first five or ten years had no government lobbying at all. It was this Silicon Valley mentality of, “Just leave us alone and we won’t show up in DC to bother you.” And I think that’s probably where they’ve hired both lobbying firms and also lobbyists, government relations people from bigger companies to help them understand that we need to be a participant as new regulations get developed, we can’t just complain, and gripe, and try to ignore it in Silicon Valley.

Kaitlin Milliken: So boil it down. At the end of the day, what actually makes FAANG so different from everybody else?

Scott Kirsner: They still have the founders around, so the founders can lay out a vision that people will march to in a way that they probably don’t march to when it’s the fifteenth CEO. Because they’re headquartered in Silicon Valley and Seattle, they’re part of the talent wars in a way you just aren’t if you’re in Kansas City or Raleigh. So I think they understand that you go to recruit. You got to be on campuses. You got to be scouting for the best talent. And then the third thing is just this multi-modal, multi-dimensional approach to innovation that you can’t just be doing one activity, like acquisitions or corporate venture capital or having an internal hackathon that’s gonna solve all of your innovation needs, and keep you relevant for all the years ahead. They’re doing lots of different things.

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Kaitlin Milliken: Big companies look to FAANG as models for innovation. These tech giants constantly disrupt themselves before anyone else gets a chance. By encouraging innovation at all levels and supplying the right resources, traditional businesses can attempt to follow in their footsteps.

[ACKNOWLEDGEMENTS]

You’ve been listening to Innovation Answered. This episode was written and produced by me, Kaitlin Milliken. Special thanks to Faisal Masud for answering all of our questions.

That’s it for our second season! Scott Kirsner and Kelsey Alpaio provided editorial guidance throughout the process of making this podcast. Marina Askari and Claudia Rocha helped us grow our audience. All of our episodes are available on our website at innovationleader.com/podcast. That page has a bunch of bonus content that can only be found on the web.

If you liked this show, please rate it and review it on Apple Podcast. That helps other innovators find us. We’ll be back in the fall for season three. As always, thanks for listening and see you soon.

[SPONSOR MESSAGE]

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