Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries

When asked what it takes to win a Nobel Prize, Crick said, ‘Oh it’s very simple. My secret had been I know what to ignore.

As teams and companies grow larger, the stakes in outcome decrease while the perks of rank increase. When the two cross, the system snaps. Incentives begin encouraging behavior no one wants. Those same groups—with the same people—begin rejecting loonshots.

People may think of Endo and Folkman as great inventors, but arguably their greatest skill was investigating failure. They learned to separate False Fails from true fails.

When groups are small, for example, everyone’s stake in the outcome of the group project is high. At a small biotech, if the drug works, everyone will be a hero and a millionaire. If it fails, everyone will be looking for a job. The perks of rank—job titles or the increase in salary from being promoted—are small compared to those high stakes. As teams and companies grow larger, the stakes in outcome decrease while the perks of rank increase. When the two cross, the system snaps. Incentives begin encouraging behavior no one wants. Those same groups—with the same people—begin rejecting loonshots.

While the individual man is an insoluble puzzle, in the aggregate he becomes a mathematical certainty.

The collapse, for example, of IBM’s legendary 80-year-old hardware business in the 1990s sounds like a classic P-type story. New technology (personal computers) displaces old (mainframes) and wipes out incumbent (IBM). But it wasn’t. IBM, unlike all its mainframe competitors, mastered the new technology. Within three years of launching its first PC, in 1981, IBM achieved $5 billion in sales and the #1 position, with everyone else either far behind or out of the business entirely (Apple, Tandy, Commodore, DEC, Honeywell, Sperry, etc.). For decades, IBM dominated computers like Pan Am dominated international travel. Its $13 billion in sales in 1981 was more than its next seven competitors combined (the computer industry was referred to as “IBM and the Seven Dwarfs”). IBM jumped on the new PC like Trippe jumped on the new jet engines. IBM owned the computer world, so it outsourced two of the PC components, software and microprocessors, to two tiny companies: Microsoft and Intel. Microsoft had all of 32 employees. Intel desperately needed a cash infusion to survive. IBM soon discovered, however, that individual buyers care more about exchanging files with friends than the brand of their box. And to exchange files easily, what matters is the software and the microprocessor inside that box, not the logo of the company that assembled the box. IBM missed an S-type shift—a change in what customers care about. PC clones using Intel chips and Microsoft software drained IBM’s market share. In 1993, IBM lost $8.1 billion, its largest-ever loss. That year it let go over 100,000 employees, the largest layoff in corporate history. Ten years later, IBM sold what was left of its PC business to Lenovo. Today, the combined market value of Microsoft and Intel, the two tiny vendors IBM hired, is close to $1.5 trillion, more than ten times the value of IBM. IBM correctly anticipated a P-type loonshot and won the battle. But it missed a critical S-type loonshot, a software standard, and lost the war.

Let’s call it the Moses Trap: When ideas advance only at the pleasure of a holy leader—rather than the balanced exchange of ideas and feedback between soldiers in the field and creatives at the bench selecting loonshots on merit—that is exactly when teams and companies get trapped. The leader raises his staff and parts the seas to make way for the chosen loonshot. The dangerous virtuous cycle spins faster and faster: loonshot feeds franchise feeds bigger, faster, more. The all-powerful leader begins acting for love of loonshots rather than strength of strategy. And then the wheel turns one too many times.

Bush and Vail understood that the doomsday cycle is not inevitable, and that the best chance for sustainable, renewable creativity and growth comes from bringing an organization to the top-right quadrant: separate phases connected by a balanced, dynamic equilibrium.

Keeping the forces in balance is so difficult because loonshots and franchises follow such different paths. Surviving those journeys requires passionate, intensely committed people—with very different skills and values. Artists and soldiers.

I’ve always appreciated authors who explain their points simply, right up front. So here’s the argument in brief: 1. The most important breakthroughs come from loonshots, widely dismissed ideas whose champions are often written off as crazy. 2. Large groups of people are needed to translate those breakthroughs into technologies that win wars, products that save lives, or strategies that change industries. 3. Applying the science of phase transitions to the behavior of teams, companies, or any group with a mission provides practical rules for nurturing loonshots faster and better.

S-type loonshots are so difficult to spot and understand, even in hindsight, because they are so often masked by the complex behaviors of buyers, sellers, and markets. In science, complexities often mask deep truths: mountains of noise conceal a pebble of signal.

On the creative side, inventors (artists) often believe that their work should speak for itself. Most find any kind of promotion distasteful. On the business side, line managers (soldiers) don’t see the need for someone who doesn’t make or sell stuff—for someone whose job is simply to promote an idea internally. But great project champions are much more than promoters. They are bilingual specialists, fluent in both artist-speak and soldier-speak, who can bring the two sides together.

Peter Thiel and Ken Howery at Founders Fund, however, reached out to their friends behind the scenes at Friendster. They dug into why users were leaving the site. Like other users, Thiel and Howery knew that Friendster crashed often. They also knew that the team behind Friendster had received, and ignored, crucial advice on how to scale their site—how to transform a system built for a few thousand users into one that could support millions of users. They asked for and received a copy of Friendster’s data on user retention. They were stunned by how long users stayed with the site, despite the irritating crashes. They concluded that users weren’t leaving because social networks were weak business models, like clothing brands. They were leaving because of a software glitch. It was a False Fail. Thiel wrote Zuckerberg a check for $500,000. Eight years later, he sold most of his stake in Facebook for roughly a billion dollars.

Bush wrote, he learned “how not to fight a war.” In the high-stakes competition between weapons and counterweapons, the weak link was not the supply of new ideas. It was the transfer of those ideas to the field. Transfer requires trust and respect on both sides.