Fast Company Founder on Corporate Innovation Challenges

By Scott Kirsner |  February 4, 2015

The magazine Fast Company started publishing twenty years ago, exploring the big ideas that were changing business and celebrating the leaders who were making it all happen. We sat down recently with co-founder Bill Taylor to talk about the challenges facing innovators inside large organizations today. Taylor blogs for Harvard Business Review and is at work on a new book, due out next year, titled, “Average Is Not an Option: Why Some People Own the Future and Others Are Stuck in the Past.” On Twitter, he is @practicallyrad.

He spoke with InnoLead editor Scott Kirsner, a former Fast Company contributor, in late December. Among the topics they covered: missionaries versus mercenaries; WD-40; the Grateful Dead; why “innovate or die” is a myth; Metro Bank and Quicken Loans; and why missing the boat can be much worse than sinking the boat. (We’ve also published five bullet-pointed highlights from the interview.)

Scott Kirsner: I don’t know if you’ve been running into these people who have innovation in their title, and are put into this role where they’re not really running R&D and they’re not running a business, but the mandate is something like, “You’re supposed to help us think about disruption, and new products, and how we enter new markets.”

Bill Taylor: I run into many of them. I feel most enthusiastic about their chances when they don’t have the word innovation in their title, but when their work is rooted more in the realities of that particular business, that particular culture, and everybody understands what the company is trying to achieve — as opposed to saying, “We need some innovation around here.” In fact, I did an HBR blog, probably a year ago, called “Stop Me Before I Innovate Again.”

It was riffing off this great Wall Street Journal article about a Hewlett-Packard analyst conference call. The guy listened to the call and counted the number of the times the CEO said the word innovation, and the column said 70 times. When Kellogg’s CEO talked about the innovation he was most proud of, it was peanut butter flavored Pop-Tarts. Really, that’s innovation?

What occurred to me at that point is the most innovative companies I’ve gotten to know tend to be the ones that use the word innovation the least. It’s just about the work, it’s about the future, it’s about having a sense of how you could make more of what you’re already doing, or how you could change it.

‘Team Tomorrow’ at WD-40

A good example…and again, no one’s going to think of this as some razzle-dazzle company, but for the book I spent a bunch of time in San Diego with WD-40.

Garry Ridge is the CEO. He took over this company about 17 or 18 years ago. It was the ultimate one-trick pony. It was this one product in this one can that everybody recognized. Everybody loved it, and everybody had a couple of cans in their garage. Every contractor had ten cans in their truck, and so on.

He had permission from the world to do so much more, if he could figure out how to extend the product, do variations of the product for entirely new areas, without doing damage to the legacy and the brand. He created what he called Team Tomorrow. It grew out of an insight he heard from this guy Don Soderquist, who was Sam Walton’s right-hand man for like 25 years at Walmart.

Soderquist said, “The bane of most big organizations is that they allow people who are responsible for today to also be in charge of tomorrow.” The problem with that is the urgent always crowds out that which is truly important.

He grabbed ten people out of the day-to-day organization – some engineering people, some marketing people, a finance person. He said, “You are Team Tomorrow.” The idea is, “Where do I want to be five years from now?”

What they’ve done is, rather than just doing products, they’ve done specialty companies. There’s a separate company, WD-40 Bike, that’s both motorcycle and bike. We’ve got to get totally into that. They’re now massive in China.

The stock has tripled in the last three years. Although it’s still rooted in the original products of the brand, it has become a completely different, much more robust, much more diversified company.

One of my favorite messages is, “You can’t let what you know limit what you can imagine.” The more you know about anything, the harder it is to say, “Wow, there are so many new answers to all these old problems.” All that expertise oftentimes constrains your ability to take the future.

Kirsner: I see a lot of companies doing that Team Tomorrow approach. We’ll create some group — maybe it’s going to be called the Innovation Lab, or the Innovation Center, or the Disruption Team. They might have some budget. They have some remit from the CEO to go look at stuff that our business units aren’t looking at.

One of the things they often run into is that really transformative new businesses generate small dollars in Year One and Year Two and Year Three, and you have a giant company that’s looking at what you’re doing and saying, “Hey, that doesn’t seem real significant to us. You started a $10 million business in a $10 billion business.”

The first issue of Fast Company, published in November 1995.

Taylor: I’m a founder of a magazine called Fast Company. I’ve come to the conclusion that, by and large, patience is a highly-valued virtue when it comes to innovation.

WD-40 Bike, it’s an asterisk right now. But they look ahead and it’s going to be quite remarkable. They’ve got a whole line of WD-40 specialist products. Even if you add them all up right now, it’s maybe 10 percent of total revenues. Four years from now, maybe it will be 30 percent of total revenue.

Are You in a Permanently-Failing Organization?

Kirsner: The patience thing is interesting because I feel like just having some corporate stability in a CEO or a COO who’s there for five years really matters. At some of these companies, you have to play the political game on a six-month by six-month basis. Who’s calling the shots now?

Taylor: The first thing I see when it comes to innovation is there’s this myth: innovate or die, change or die.

I’ve read a great monograph, written by these two academics. They said, “You look around, and most organizations are horribly mediocre. They’ve been horribly mediocre for 20 years.” They haven’t gone out of business, even after the Great Recession. They call them permanently-failing organizations. It turns out you can spend your whole life working in a failing organization.

At some point, what people have to decide is, “Yeah, I could have a career and the company can suck and we could be really boring. I’ll try to have a good project to get some credit for that, and try to avoid projects that are looking bad.”

Or you say, “You know what? I want to look back at what I did twenty years from now and think I did something important, something meaningful. I have a real passionate belief in the business, in the part of the economy we’re in and serving our customers. So I’m actually going to devote myself to doing extraordinary things at my company.”

That’s just not how most people look at the world. Yet when you do, really amazing things are possible. But most of life is dealing with people who really want to treat business as moving numbers around on a spreadsheet, getting credit for good things, avoiding blame for bad things.

There’s another distinction I love, which is why it’s so hard to innovate. We’re so good at quantifying all of the financial costs and organizational costs and the human toll of trying something that we thought would work, and didn’t. Maybe you spent $3 million on something in six months.

We’re really terrible at looking at something which we could have done. We had the technology, we had the knowledge, and we had the market. Had we tried it, it would have worked, and we would have done great.

Sinking Boats & Missing Boats

Kirsner: No one ever gets fired for that sort of missed opportunity.

Taylor: There was this great white paper, written by two guys at Ohio State. They said all of business culture is about punishing people for sinking the boat. You build a boat, you send it out to sea, and it sinks. Nobody ever gets punished for missing the boat.

The story of most big companies is, “Man, it was all right there to be done, and we just didn’t have the guts to do it. We missed the boat.” I think being able, as a leader, to communicate the big organizational costs of missing the boat, not innovating when you could have, is super-important. Versus being very good at counting the beans when you try to innovate and it doesn’t work out.

Kirsner: I don’t know if you read it, but there was a good “New York Times” piece last week about Susan Wojcicki, who runs YouTube. We shouldn’t talk about innovation at Google, because they’re always the example. But Google did their own Google Video website in the early days of Internet video. They tried to license some content from TV networks and from the NBA and stuff, and they just kind of failed.

They did what you said, which was they weren’t going to miss that boat. They knew video was going to be important. Initially, they tried it with their own team. I think that this article makes it seem like their experience of failing, the boat sinking, made them realize how important it was going to be to own YouTube, and that they needed to buy YouTube before someone else did.

Taylor: Yes, that’s a great example.

Why People Won’t Change

One of the first articles we ever published in Fast Company was by a guy named E.F. Borish. The title of the article was “Fifty Reasons Why We Cannot Change.” It’s just about how hard it is to innovate. He was the son of the founder of a company in Milwaukee, Milwaukee Gear Company. It still exists. Very successful manufacturer of gears and stuff.

He was the son, and he was trying to shake things up. The whole article is just a list of the 50 objections.”We’ve never tried this before. We don’t want to ruin the business.” “We’ve already tried this before. It didn’t work. Why should we do it again?” “None of our competitors are doing this. We don’t want to be the first ones out of the gate.” “Our competitors are already doing this.” “We’re too big; it will never work.” “We’re too small.”The article is just literally this list of fifty. It’s really very clever. But here’s the kicker. It’s actually a reprint of an article written for a magazine called Product Engineering News in 1959.

If it’s not human nature, it’s organizational nature. The incumbent mindset is to look at new ways of solving old problems, opportunities to project yourself into entirely new areas and come up with, in this case, fifty reasons why it will never work. This is the work of leadership — to overcome this.

Kirsner: I was talking to an innovation executive this morning at a shoe company. He was saying, “If you’re working at an organization where any of the business unit leaders can say no to what you’re doing, quit.” In their organization, no single person can say no, but they’re also not forced to adopt anything that his group comes up with. He said, it’s incumbent upon us to do something really valuable that will deliver value for them along the line. [Here’s that piece, about Stuart Jenkins of Deckers Outdoor.]

Taylor: That is, by the way, a good rule of thumb at a lot of great service organizations. The rule is, “One to say yes, two to say no.” As an individual, you can say yes to just about anything. But if you want to say no to a customer, you’re not allowed to do that on your own. You have to go with somebody else.

I think the default mode, whether it’s customer service or innovation, the default mode is, let’s say no. What’s the harm of that? It takes a big committee to say yes. Again, if you flip that on your head, I think that’s a really important thing.

Start Rough & Get Customer Input

Kirsner: Everybody is talking about the lean start-up methodology. You’ve seen this, right? But a few companies, like Intuit, really seem to have adopted it. They teach their employees what it means to do a lean start-up market test with real customers. They give them a Google AdWords account and credit cards.

Taylor: That’s awesome.

Kirsner: They also seem to be saying, “Look. If you really want to innovate, you don’t have an internal committee of people who are saying ‘Yes, this is a good idea,’ or, ‘No, this is a bad idea.’ You just do it the lean start-up way, which is if you can get customers to buy it, it will gain momentum that way.”

Taylor: That’s great.

Kirsner: It seems like a lot of companies are trying to get that kind of internal entrepreneurship happening, whether it’s through training, or the lean start-up tools, or something else. Do you feel like that’s a thread that you’ve seen?

Taylor: Totally. Leadership today, making progress today, is all about unleashing things. To me, what I see more and more organizations trying to do, is to say, “Look. We live in a world where the best ideas often come from the most unexpected places.” It’s kind of overcoming that paradox of expertise. Get fresh eyes on the problems that have bedeviled us for a while, or get fresh eyes on opportunities we can’t really make sense of, but maybe they’re out there. Allow a kind of meritocracy of ideas, where there’s not some product review committee sitting in a room passing judgment. Rather, let’s do experiments. Part of the virtue of anybody’s idea is can you persuade colleagues to help you with that idea. Let people recruit their own teammates to bring ideas to life.

That’s not comfortable. I admire Intuit greatly. I don’t know that most organizations would be so flexible to give just anybody and everybody room to experiment.

Kirsner: Most big companies have this tremendous sense of quality control. Anything that gets in front of the customer has to represent our brand — whether it’s Coke or Levi’s or whomever. Part of being a start-up is putting something really crappy in front of the customer to see if it’s something they’ll buy.

Taylor: I think companies don’t give their customers enough credit. People understand this now. “We’re roughing this out. We want you to help us make it better than it is. It’s our beta or our alpha.” People enjoy the opportunity, by the way. You’re not embarrassing yourself, you’re not imposing anything on them. You’re giving them a shot, as a customer, to help you.

Forget Competitors — What Can You Do for Customers?

Kirsner: Another topic we should discuss is competition. I feel like most companies get locked into this us vs. them, Coke vs. Pepsi, Marriott vs. Hyatt competition. Then, somebody will come along, and they’re like Airbnb. It turns out that your competitor is not who you thought your competitor was.

Do you see any effective techniques or ways of getting out of that mindset where you’re constantly thinking about the traditional competitors, and not being aware that there’s a disruptive model that’s going to come out?

Taylor: For most leaders of organizations, [they think about themselves] compared to the competition, as opposed to compared to what’s possible, given that we want to do the best job that we can possibly do for our customers?

Life today is all about the opportunity gaps — what we are doing versus what we could be doing. That sense of this is what’s possible in our field. Not because we dream it up in blue-sky meetings, but because we know this is what, deep down, our customers want from this business.

The competitive set becomes the aspirations of your customers — what you can do for them as opposed to what the current playbook is. There was a famous quote by Bill Graham, the rock promoter. Someone asked him, “Why is the Grateful Dead so successful?” He said, “It’s very simple. They don’t want to be the best at what everybody else is doing. They want to be the only ones who do what they do.” I think that is a completely different way of looking at the world.

By the way, what’s amazing to me is if you approach the world that way, and if you do things that are genuinely new, exciting, compelling, and resonate with customers, it’s amazing to me not how fast but how slow everybody is to copy what you’re doing. People have this notion that I don’t want to break new ground because the minute I succeed, someone copies me.

Kirsner: The funny example I’ve been talking about lately is Tesla. What are your options if you want to buy an electric car today in the US? You can buy a Tesla, a BMW, or a Nissan. We’re six, seven, eight years into Tesla’s lifetime. Where is everybody else flooding into that market?

Taylor: I wrote about Vernon Hill of Commerce Bank in “Mavericks at Work,” and I’m writing about him again.

I think he started in 1983 in the US — started Commerce Bank in New Jersey. Winds up a huge success from Maine to Florida. TD Bank buys it for $8.5 billion. It’s all about, we’re going to think about retail banks like Apple. They’re going to look amazing. They’re going to be open seven days a week. We’re going to have these money machines if you want to count your change. They look like Willy Wonka things. Exuberant culture. Their corporate color is red, and everybody dresses up in bright red on Fridays. The customers dress up, and you get free prizes.

It’s this whole idea of “banking as retail-tainment,” as he called it. He does this for 25 years in the US, sells for $8.5 billion. There are Harvard Business School case studies about it, we wrote about him in “Mavericks at Work,” wrote about it in “Fast Company.” It’s an open book for anybody to see.

He says, “OK, I’m now a billionaire. What do I do now?” He looks at England. He says, “Do you realize there are the five so-called High Street banks in England?” There’s not been a new bank chartered in England since 1835. Really. Since before Queen Victoria moved into Buckingham Palace. She moved in in 1837, so this is before that.

There have been no new High Street banks, meaning retail banks that take individual deposits. Hill says, “Why don’t we just start a bank in England?” He calls it Metro Bank. Literally, his Commerce model reached its high point in New York City where they just wiped Citibank off the face of the earth, in terms of deposit collection.

He went into London. Became the first bank to get a charter from England since 1835. Went to London in July of 2010. Steven Cohen and Fidelity funded him. He raised a billion dollars. They now have like 25 branches. They’re going to have, by 2020, 200 branches, They’re running circles around the British banking aesthetic.

He’s doing nothing he didn’t do before.

The unwillingness of established organizations to learn from the innovators in their field is really, to me, stupendous. I guess it’s not mystifying, because of all the things we’ve talked about.

Have you been to 1111 Lincoln Road, in Miami?

Kirsner: It’s on Lincoln Road Mall on South Beach?

Taylor: It’s the corner of Lincoln and Alton. It is the most exciting parking garage the world has ever seen.

Kirsner: I know the parking garage you’re talking about. It’s beautiful.

Taylor: This guy Robert Wennett is an artsy guy, but very successful at commercial real estate development. He buys it around 2006. It’s an ugly bank in this flat parking lot. It’s very at odds with the groove of Lincoln Road and South Beach. He says, “I’m going to take that which is totally boring and functional, and I’m going to do an incredible design statement.

Now, on the top floor of the parking garage, which is open air, LeBron James last year released his 11th Nike shoe design. Just last week, Paper Magazine, after they did that incredible Kim Kardashian shot of her asset, they had their big unveiling of it. People have weddings there and everything else.

On the fifth floor, in the middle of the parking garage, there’s this huge, glass cube, which is this cutting-edge fashion retailer. The property was a SunTrust Bank when he bought it. They said, “We really want to have our bank here.” He said, “OK, but you’ve got to do it my way.”

In the middle of the city, they’ve got a drive-thru bank, which is kind of unusual. In this one, you literally drive through the bank, through the middle of the bank. It’s amazing!

He’s taken something which is a thousand percent mundane, a freaking parking garage. The Express has a shop there, and several of the cool European brands. Viacom/MTV has its offices in the parking garage. He lives in the penthouse.He’s got an incredible penthouse.

Again, taking something so prosaic, so mundane, and saying, “With a fresh set of eyes, we could transform this into something remarkable.” It’s this complete runaway business success. To me, again, that’s the kind of imagination I admire.

Mercenaries Versus Missionaries

Kirsner: The one other thing that you’ve got me thinking about is the people aspect of all this. When I go visit startups in San Francisco or Cambridge, there’s a particular kind of revolutionary mindset. You’re not afraid to take on the big companies. You know that the big companies are going to be slow to respond, as you say.

There’s that swing for the fences attitude. The big companies want those kind of people to come work for them, but it can be so hard to attract someone with that mindset to the 10,000 person, 20,000 person company.

Taylor: [The venture capitalist] John Doerr says he sees a difference between the motivations of entrepreneurs and executives — a difference between missionaries and mercenaries.

Mercenaries are all about the pitch and the deal. Missionaries are all about the story and the impact. Mercenaries are all about financial statements. Missionaries are all about value statements. Mercenaries are all about vanquishing the competition, and missionaries are all about partnering.

He says mercenaries want success. Missionaries want success and significance. I think you can be a big organization and attract those kinds of folks, so long as you’re run by or you have the missionary mindset.

Do you know Dan Gilbert? He’s reinventing Detroit and the Cavaliers. He started Quicken Loans, sold it to Intuit and then bought it back from Intuit. They’re the biggest online, with more than $80 billion in mortgages. It’s about the technology. It’s about innovation. It really is so much all about the culture.

To me, what most big organizations lack, and not because they’re not smart enough, is the guts to say, “This is what really matters around here. This is why we think we’re going to win. These are the kind of people who thrive here.” Having relentless clarity about how we do things, how we treat each other, what’s important, how we innovate on that.

What Gilbert does is every six weeks, they have an orientation for new employees, and I got to sit in on it. It’s eight hours. It’s like 1,000 people every six weeks, because not only is it an orientation for new employees, but existing employees have to come back and get it refreshed.

It’s Dan Gilbert and his president, William Emerson. They spend eight hours, just the two of them on stage. It’s kind of a comedy routine, it’s kind of a Tony Robbins inspirational thing, it’s kind of like listening to a fire and brimstone preacher. It was a very powerful thing. You can’t expect twenty-somethings who are filled with fire and brimstone and that missionary mindset to walk into a soul-sucking, bureaucratic place.

It’s not so much about size. It is about soul. Most big organizations have been drained of that.

Gilbert’s big thing is any email from a customer must be returned within two hours. That’s the only cardinal rule at Quicken Loans. He says, “If you can’t do it, you’re too busy, forward it to me and I’ll do it.” It’s that sort of stuff.

Kirsner: The thing you said that stuck with me is the patience element. We are living in such a minute-by-minute world.

Taylor: It’s about having the mindset of saying, “The job here is to build something great.” The way you build something great is to do great things for the customer, ultimately. What else is the point?

In a world that’s moving so fast, changing so fast, to do great things for the customer, we have to be as open-minded as we can be. You wake up every morning with the mind of a builder as opposed to the mind of a manipulator. I don’t mean that manipulator to mean manipulative. I mean, moving stuff around the board and spinning off and acquiring.

Patience as a Pre-Requisite for Innovation

Kirsner: I do think that for building, that patience and stability is really important. It’s so lacking in so many companies where it’s, “We’ve been trying this for three quarters, let’s cut and run,” or there’s a management change. Patience and stability are not sexy words, but they are pre-requisites for all this.

Taylor: Yeah, they are. It’s funny. I wouldn’t say slow and steady wins the race but…

Kirsner: Non-schizophrenic certainly wins the race, right?

Taylor: There’s a famous quote by Jim Collins I haven’t said in a couple of years. “The signature of mediocrity is not an unwillingness to change. The signature of mediocrity is chronic inconsistency.”

First, we’re going to do it with quality, we’re going to do it with asset reallocation, we’re going to do it with acquisitions, we’re going to do it with spin-offs. People are so desperate. They’re just lashing out for any tool, technique, gizmo, gadget, whatever. They lurch from one silver bullet to another. Oh my god, six months later, what are they going to tell us today about how we’re going to win in our business?

As opposed to other folks who say, “We’re in this for the long haul. We don’t know exactly what we’re going to do, but we know why we wake up every morning. We know what we’re trying to do for our customers. We’re going to keep an open mind about how we best do that, and we’re going to try to come up with the best ideas, wherever they could be.”