Scale Matters:
Creating High-Value Innovations
From Raw Ideas
LES-SVC 2016 Annual Conference
April 20, 2016
Eugene Shteyn
[pronounced Stein]
[email protected]
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Genrikh Altshuller (1926 – 1998)
Since 1940s - analyzed tens of thousands of inventions
»  Discovered that strong solutions repeat
»  Extracted 40 Invention Principles
»  Invented TRIZ (ТРИЗ) and ARIZ (АРИЗ)
»  Created an “Open Source” invention community in the
USSR
»  Followers around the world, including the US
http://www.pri.org/stories/2016-03-10/science-fiction-writer-soviet-union-found-secrettime-travel
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Innovation is the source of extraordinary value
–  e.g. top most valuable brands in 2015
•  Apple, Samsung Group, Google
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https://www.youtube.com/watch?v=XAEPqUtra6E
WWDC 2013 - Intro Video - Apple's Product Strategy
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https://www.youtube.com/watch?v=XAEPqUtra6E
WWDC 2013 - Intro Video - Apple's Product Strategy
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The reality of a typical corporate innovation process
3,000 raw ideas = 1 successful product
Source: Greg A Stevens; James Burley. 3000 Raw Ideas = 1 Commercial Success. Research Technology
Management; May/Jun 1997; 40, 3; pg. 16
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Failure is the norm
•  About three-quarters of venture-backed firms in the
US don’t return investors’ capital
•  If failure is defined as failing to see the projected
return on investment—say, a specific revenue
growth rate or date to break even on cash flow—
then more than 95% of start-ups fail
• 
-- WSJ, 9/20/2012
•  Most optimistic industry estimates: less than 5% of
patents are commercially valuable
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Agenda: three simple questions
•  How can we successfully imagine the next
important innovation?
•  How can we successfully create extraordinary
value through innovation?
•  How can we successfully capture a portion of
this value?
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The best way to predict the future is to
invent it
- Alan Curtis Kay
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At Kleiner Perkins we say “If you can’t
INVENT the future, the next best thing…
is to FUND it.”
- John Doerr
source: http://techcrunch.com/2010/04/05/john-doerr-the-next-big-thing/
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Creating value isn't enough—you also need
to capture some of the value you create.
- Peter Thiel
source: http://www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536
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Structure: Divergent – Exploratory - Convergent
Source: Dave Gray, et. al. Gamestorming.
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http://www.levistrauss.com/ accessed on 1/25/2012
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Invention vs Innovation:
similar words for totally different
processes
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Understanding the difference depends on
the perspective, often provided by the
media
against
new
old
Invention and innovation are lumped together as part of the “new”
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Zooming into the “new”
“it works”
everybody
nobody
concept
Source: Shteyn & Shtein. Scalable Innovation. 2013
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Zooming into the “new”
“it works”
everybody
nobody
concept
Source: Shteyn & Shtein. Scalable Innovation. 2013
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Zooming into the “new”
“it works”
everybody
nobody
concept
Source: Shteyn & Shtein. Scalable Innovation. 2013
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From Invention to Innovation
“it works”
everybody
nobody
concept
Source: Shteyn & Shtein. Scalable Innovation. 2013
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Invention is a personal or
a small group event
Innovation is a large network of social events
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Inventor’s challenge
Jacob W. Davis to Levi Strauss & Co
Reno, Nevada. July 5, 1877
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An innovation deal of the century
Jacob W. Davis to Levi Strauss & Co
July 5, 1877
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http://www.levistrauss.com/ accessed on 1/25/2012
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GE IP advertisement
and licensing program,
ca 1914
Source: The Smithsonian
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Thomas Alva Edison
US Patent 438,310.
Source: Electrical World,Volume 64, Part 2. October 1914
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Nicola Tesla & George Westinghouse
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Do you recognize the object in the picture?
Clue: the picture was taken in 1958
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Jack St. Clair Kilby (1923 - 2005)
1958. Texas Instruments. Invention
of the Integrated Circuit.
1961. First computer with IC.
1963. Pocket calculator.
1978. Professor at Texas A&M.
2000. Nobel Prize in Physics.
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1953. PhD from MIT.
Robert Noyce (1927 - 1990)
1956. Joined Shockley Semiconductor.
Moved to California.
1957. A reluctant member of the
“Traitorous Eight”, the founders of
Fairchild Semiconductors. General
Manager.
1959. Invention of the Integrated Circuit.
1968. Co-founder of Intel.
I did not see it as a very unusual day. I just went in and probably
had a discussion with Gordon Moore or Vic Grenich or
somebody like that initially. I said something like, "Hey, here's a
way to do the whole job of making some logic circuits instead of
making individual transistors."
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Gordon Moore ( born Jan 3, 1929 )
1956. Joined Shockley Semiconductor. Moved
to California.
1957. Co-founded Fairchild Semiconductors.
1965. The Moore’s Law.
1968. Co-founded Intel.
…at the time the first microprocessors were shipped, the total annual market for
computers in the world was something like 10,000 units. The microprocessor
would have been a commercial disaster if all we did was to replace those 10,000
units with cheaper processors. I remember going to a conference and speaking
before a group that was more involved in applications than devices and explaining
to them that we had to ask big questions, like, ‘ How are we going to develop
markets that can use 100,000 of these a month?’
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One of the key breakthroughs came when [Google
engineers] Veach and Kamangar decided to use auctions
to sell ads. It made perfect sense. In a dynamic
marketplace, auctions allow you to find the sweet spot
where buyers and sellers both win.
The source of their idea was the business model of one
of Google’s competitors. GoTo was the brainchild of
one of the most fecund minds of the Internet age, an
energetic Caltech grad named Bill Gross.
Source: “In the Plex,” by Steven Levy.
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More Examples
• 
• 
• 
• 
Steve Jobs – GUI, the mouse, etc.
Larry Ellison – Relational Databases
Microsoft – DOS, Office, browser
Google – relevant text ads, maps, video, auto
auto, etc.
•  Facebook – chat, instagram, VR, etc.
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Innovation is not enough. It has to be a
Scalable Innovation
•  Technology has become
a winner-takes-all market
–  Prone to Natural Monopolies
–  Huge gaps between #1 and #2 and #3
-  Social Networking: Facebook, G+
$
-  Search: Google,Yahoo, Microsoft
-  Online Video:YouTube, Netflix
-  Smart Phones: Apple, Google, Samsung ….
- Books: Amazon, Barnes and Noble, ?
-  PC Processors: Intel, AMD,
-  Mobile: ARM,…
- etc.
Industry rank
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industry rank
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Innovation creates its own Space-Time
“Insanely
Great
Product”
The “Big Bang”
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Source: http://www.eetimes.com/electronics-blogs/social-mania-blog/4214882/Requiem-for-an-era
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How do we create or take advantage of
opportunities for Scalable Innovations?
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Creativity is difficult, wonderful and confusing. It’s subject
to hype and large doses of misunderstanding
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Creativity is wonderful and confusing;
subject to hype and misunderstanding
“Inspiring creativity!”
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The 2,500-year-old paradox
"[A] man cannot search either for what he knows
or for what he does not know[.]
He cannot search for what he knows
-- since he knows it, there is no need to search
-- nor for what he does not know, for he does not
know what to look for."
Source: Plato, Meno, 80e.
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I once knew a little boy in England who asked
his father, “Do fathers always know more than
sons?” and the father said, “Yes.”
The next question was, “Daddy, who invented
the steam engine?” and the father said, “James
Watt.”
And then son came back with “ – but why didn’t
James Watt’s father invent it?”
Source: Gregory Bateson. The Ecology of Mind.
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Horse Carriage
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Before
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Horseless Carriage
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After
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Phone
iPhone
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The Web
“Web 2.0”
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Beware of Skeuomorphs!
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Stages of Innovation
how to recognize and leverage them
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Dominant design and Dominant process
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Product, Process and Use Innovations
dominant design
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Dominant Design is an implementation of a new functionality
that the market adopts as the exemplar for future
implementations.
dominant design
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The problem: The seams are usually ripped
or started by the placing of the hands in the
pockets and the consequent pressure or strain
upon them.
The solution: To strengthen this part I employ
a rivet, eyelet, or other equivalent metal stud, &,
which I pass through a hole at the end of the
seam, so as to bind the two parts of cloth
together, and then head it down upon both sides
so as to firmly unite the two parts.
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© Eugene Shteyn
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Product, Process and Use Innovation
dominant process and use
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One of the latest examples
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Other examples
•  Google+ vs Facebook
•  Wal-mart vs Amazon.com
•  HP vs Apple iPhone/iPad
•  Innovation centers vs Silicon Valley
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How can we capture and retain a
portion of this extraordinary value?
Using IP assets in an investor economy
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A Patent War
Our lawsuit is saying, “Google, you f*cking ripped off the
iPhone, wholesale ripped us off.” Grand theft. I will spend my
last dying breath if I need to, and I will spend every penny of
Apple’s $40 billion in the bank, to right this wrong. I’m going
to destroy Android, because it’s a stolen product. I’m willing to
go to thermonuclear war on this.
quoted from “Steve Jobs”, by Walter Issacson. 2011
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Radio – a Revolution in Technology, Business,
Military
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The danger of being ripped off is
imminent,
especially early in the innovation cycle
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Jacob W. Davis to Levi Strauss & Co
July 5, 1877
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Other important patent wars
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
The Cotton Gin
Sewing Machines
Railroads
Electricity
Telephone
Automobile
Radio
Television
The Integrated Circuit
PC Graphical User Interface
Recombinant DNA
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Intellectual Property
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How does it compare to other property rights?
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Real-life inventor experience
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Real-life inventor experience
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November, 2014
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November, 2014
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November, 2014
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Source: Zvi Bodie et. al. Essentials of Investments, 9th ed. 2013.
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Source: Zvi Bodie et. al. Essentials of Investments, 9th ed. 2013.
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IP-related assets and instruments
(a “divergent” investor perspective)
1. 
2. 
3. 
4. 
5. 
6. 
7. 
8. 
Novel ideas in people’s heads
Tacit knowledge, i.e. the learning curve
Business social, i.e. the network
Trade secrets
Patents and patent applications
Copyrights
Trademarks
Other
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http://www.levistrauss.com/ accessed on 1/25/2012
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Industry S-curves
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…at the time the first microprocessors were shipped, the
total annual market for computers in the world was
something like 10,000 units. The microprocessor would
have been a commercial disaster if all we did was to replace
those 10,000 units with cheaper processors. I remember
going to a conference and speaking before a group that was
more involved in applications than devices and explaining to
them that we had to ask big questions, like, ‘ How are we
going to develop markets that can use 100,000 of these a
month?’
- Gordon Moore
© Eugene Shteyn
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Creating value isn't enough—you also need
to capture some of the value you create.
- Peter Thiel
source: http://www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536
© Eugene Shteyn
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Goal: a hedged innovation portfolio
built to scale
•  Help the right ideas in people’s heads
•  Make sure innovation happens
•  Beware of skeuomorphs!
•  Create or contribute to Dominant Design,
Process and Use
•  Manage risks through IP
•  IP instruments as derivatives on Scalable
Innovations
•  “Option” execution
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Q&A
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