How easy is it to try a new idea?
In innovative cultures, it’s really easy.
In not-so-innovative cultures, it’s not. These cultures have a lot reasons not to try new things. These reasons come from cultural problems that would need to be addressed for the company to become more innovative.
When I worked in innovative cultures, trying new ideas was natural. New ideas were encouraged and rewarded. The first question when a new idea was brought up was usually, “How can we prove that out?” It wasn’t even thought to dismiss the idea until it was tried out.
Often, when we explored ideas, we ended up learning even more that led to more ideas. Think of these as pivots. Pivots often had better odds because they were based on real world feedback gained from the initial exploratory missions.
This is why I call this the discovery culture.
In one example, we went into a project aiming to improve price transparency.
Through our exploration we discovered it was about 5x more powerful to remind customers what was included in the fee. We discovered this by accident. We had extra white space on the marketing materials and in one trial we filled it with a bullet point list of what was included in the fee as a throw-away.
But, we unexpectedly learned there were 2-3 items on the list that customers did not know were included, did not expect them to be included and knowing they were included changed their value perception for the better.
When I’ve worked in less innovative cultures, new ideas were met with resistance. Instead of asking how we can prove it out, people reflexively tell you why they think it won’t work, which was usually based on their own opinions. It wasn’t even thought that we should try the idea before dismissing it.
The result was that few new ideas were tried.
Not only do these cultures give up the gains from these ideas, but they miss out on discovering the pivots, too, like when we discovered that simply reminding customers what was included in their fee was valuable.
When investing in individual companies, I look for clues to how easy it is to try new ideas there.
A key reason I think it’s hard to beat index funds is that it spreads your bets on new ideas across many more companies and the companies that make it into the indexes are above average in trying new things.