The Innovation Stack: Building an unbeatable business one crazy idea at a time

Title: The Innovation Stack: Building an unbeatable business one crazy idea at a time
Author: Jim McKelvey
Edition: 1st
Publisher: Portfolio / Penguin

An Innovation Stack is not a plan, it is a series of reactions to existential threats. You build an Innovation Stack the same way the pioneers travelled without maps.

The innovation stack draws the reader’s attention with the feud between Square and Amazon. However, it’s in its analysis of why companies like IKEA, Ford and Southwest airlines were successful that the book truly shines. These companies all had their unique innovation stacks, or in Jim McKelvey’s words, “a collection of both interlocking and independent innovation”. Their products and services resulted from a successful problem-solution-problem chain required before any innovation occurred.

Copy when you can, invent when you must

It is ironic that an innovation book advocates for copying, but it is reasonable when, as an entrepreneur, all you should be thinking about is how to solve one problem. When you’re developing a new product, you will need to be innovative, but you don’t have to innovate in every aspect of its development. If all you’re doing is creating a delicious cupcake, you shouldn’t have to think about designing new oven mitts.

“We copied everything we could. Our corporate structure, our legal documents, our HR policies, our location, our cafeteria, and a hundred other things we took right from the playbooks of other successful Silicon Valley firms. We even took some of their employees. Invention was a last resort." - p.57

Jim is right when saying that “Copying is almost always the best option because things that work are rare”. You will save a lot of time and money by doing what others already do. You can even make a profit by selling cheaper copies of innovative products worldwide. However, copying has one serious limitation. Nothing ever changes.

Creating new markets is not zero-sum

The zero-sum fallacy states that for you to win, someone has to lose. This is true in video games and certainly in many other situations, but it is not the case for every product. One example is the case of Southwest Airlines, the first airline to sell low-cost flight tickets, which allowed a whole new market to emerge by making it possible for more people to fly than ever before.

“The focus of the entrepreneur is the people who cannot get a loan, or travel, or furnish their home, or get paid. If we glance at the system, it is neither to copy it nor to destroy it, but simply to see how much more can be done.” - p.234

The book goes on with more examples like Ford, Bank of America and IKEA. IKEA, for example, built its showrooms, moved its manufacturing abroad, customised and improved its factories efficiency, created self-assembled furniture, optimised for interchangeable parts, and so much more to achieve its goal of price-quality ratio. “Even in hyper-competitive China, no store can even get close to replicating IKEA’s price and quality”.

The missing element

When innovating, there will be roadblocks on the way. Unfortunately, for some of these obstacles, the only way to circumvent them is to wait until external forces like regulations or the existance of specific technologies allow you to do it.

“In the world of entrepreneurship, being first is not always best. This is because some elements of the Innovation Stack depend on each other. When a critical element is outside your control, waiting can be the best option. (…) GeoCities, Friendster, and MySpace all launched before mobile computing was commonplace. Without always-on access to the system, the appeal of a social network is diminished, and before mobile phones we weren’t always carrying cameras.” - p.166

In those cases, waiting might be an option while you work in other parts of the business, but ultimately you will have to weigh the costs. Waiting for one bill to become law is different than waiting for a completely new technology to emerge.

Conclusion

If you aspire to innovate and build something new, look around for opportunities in expanding existing markets to segments of the population who do not have access to certain products or services. Get to know why and innovate iteratively on every problem that arises when working towards that goal.

For example, you can try to build a set of snowboarding equipment that the average student can afford. To do that, you will have to look into the price of raw materials, the manufacturing costs, processes and everything else that is keeping the final price from going lower.

It won’t be easy but when that happens, you’ve become more than a businessman.

You’ve become an entrepreneur.