This session is called Push, Pull, and the Sources of Innovation. Now, why are we talking about innovation? To explain that, we really have to look at where advantage comes from for new companies. Ultimately, if you don't have advantage, you're not going to be able to earn profits, as an entrepreneur. So let's talk about where advantage comes from. First, just for completeness, is illegal or regulated monopoly. If you have a monopoly, that's the best form of advantage. There are a few enterprises that have monopolies. For instance, in China, CCTV, the national broadcasting company does have a monopoly on media in China and so that's great. If you have that kind of monopoly that gives you advantage. I've put it in parentheses here because for most of you it's totally irrelevant, but I do want to just put it there for completeness. The other source of advantage that some companies have is called scale. Meaning you make more of something than anyone else. And as a result, because of scale economies, your costs are lower than anyone else. That can also give you advantage. Scale is rarely an advantage for a new business, so it's rarely relevant to entrepreneurs. Fortunately there's a third category of advantage, which is doing something that's valuable, better and different. You might have a differentiated product or service or have some rare capability like cost efficiency, safety, software engineering prowess, some kind of other rare capability. For most entrepreneurs you have to do something valuable, better and different in order to get advantage. And so this third category of advantage is the primary focus for the entrepreneur. I define innovation as a new match between a solution and a need. And so in this graphic I represent the needs as these targets and the solutions as these arrows. Innovation is creating a new match between solution and need. In order to create value in innovation three conditions have to hold. First, the need has to be real meaning that enough people have a deep enough need that solving that problem has economic value. So first the need has to be a real need. Second, your solution actually has to meet the need. It has to address the challenge, make the pain go away for the customer. And a third condition is that the customer has to be willing to pay you more for the solution than it costs you to deliver it. And if you as the entrepreneur can achieve all three of these conditions, then you can typically create value through innovation. Now, there are two different ways to find a match between solution and need. The first is a pull. In a pull, we start with the need, so, we start with the target, and we basically ask the question, how can I solve this particular problem? And then as an entrepreneur, I go searching alternative solutions, maybe ten or more solutions, and I select that solution which best meets the need at an attractive cost. That's called a pull. Start with a need, explore lots of solutions, pick the solution that best meets the need at an attractive cost. In fact, this is the textbook model of innovation. In fact, this is my textbook. I teach this in my product design class. Start with the need, understand the user needs, generate alternative solution concepts, select the solution that best meets the need at an attractive cost. Mostly this is the way we also proceed in this course. Let me give you an example of the pull. This is Tony Fadell. Tony Fadell was a long time employee of Apple computer. He worked for Steve Jobs, and he created several generations of iPods, and iPhones, and iPads at Apple. At some point, a few years ago, he retired from Apple and he proceeded to build his dream home. When he got near the completion of this new house, he went shopping for a thermostat. And he went into the home improvement stores, looked at the existing thermostats, and said I just can't bring myself to put one of those ugly beige boxes on the wall of my new house. All the existing thermostats in the market are ugly, they're hard to program and they're hard to use. So I'm going to start a thermostat company. That thermostat company became Nest Labs, which was recently acquired by Google for $3.2 billion. This is a classic example of a pull. Fadell had a problem. He had the problem himself which was that existing thermostats, were ugly, hard to program and hard to use. Then he went and created a new solution the Nest Labs thermostat to address that problem. That's an example of a pull. One of my former students started a company called Stringr. Her name is Lindsey Stewart, and she had been a producer in the television news business. And one of the biggest problems she faced in news was in sourcing high quality video of breaking news. So for instance, if there were a fire downtown, she really wanted some video footage of the fire to put on the evening news on television. And so she would have to contract with a videographer to go get that footage, and to acquire it, and then to put it into production. That process was time consuming, expensive, and uncertain. And so Lindsey recognized this problem and thought there must be a better way. She created the app called Stringr. And the way the app works is a news producer can enter the desire for a particular piece of video footage on a web based interface. And members of the community, freelance videographers, can look at the request for footage and can go out and capture that footage and submit it using their mobile phone. And they're automatically paid about $80 US for that video footage. Stringr has proved to be a great solution to a problem that Lindsay herself had experienced while being a news producer. This is another example of a pull. It started with the need and Lindsay went and figured out a solution that would address that need. But that pull is just one way to innovate. It starts with the need and then goes and tries to find a solution. The innovator can also push. The innovator can start with a solution and ask the question, what can I do with this? There must be some need out there that my solution would address. Let me give you an example of a push. The inventor, Dean Cayman, created a self-balancing wheelchair shown here in this photograph meeting with Bill Clinton. The key idea behind the self balancing wheelchair, called the iBot, was that it could stand up on two wheels, which would allow the user to be at eye level with people who were standing up. This product is called the iBot. It was sold by Johnson & Johnson as a medical device. But once developed, Cayman asked the question. Wow, we have this amazing technology to balance a wheelchair on two wheels, I wonder if we could find any other application for that? And several of the engineers on the development team said, you know what? I bet you could create a platform that you could stand on and you could use this self-balancing wheelchair technology to create a personal transportation device for anyone, whether or not they were disabled. That insight gave rise to the Segway. That was the origin of the Segway personal transporter. Shown here is one of the key applications that the Segway team eventually found. They found that police officer could use the Segway to get around in environments in which space was constrained. Where they wanted to be able to move slowly, and where they wanted a high degree of maneuverability. So shown here is a police officer on a Segway. The problem was that once Segway proved that police officers wanted a mobility device, a low speed mobility device like the Segway, others could think about alternative solution concepts. So in fact, once the security market and the police market was proven and established, competitors entered with alternative solutions. Shown here is a three wheeled product from the company T3 Motion. Now a three wheeled personal transporter is much less complex and much simpler than a device that balances on two wheels. And so T3 was able to sell this product at lower prices and with greater performance than the Segway. So if we go back to the three questions that have to be answered in order for value to be created, the Segway identified a real need for police officers to get around. In fact, the Segway met that need so it satisfied criterion two as well. But what they found was that they struggled with criterion in three. Is the customer willing to pay more for the solution than it costs to deliver it? One of the key problems is that they didn't adequately consider what the alternative solution concepts could be that could address that same need. Eventually Segway in fact introduced its own three wheeled version of its scooter shown here. Again the three wheeled configuration is a lower cost, higher performing solution that addresses that same need for police officers to get around. The risk with the push approach to innovation is that you fail to consider all of the possible solutions to the need that you've identified. The innovator who pushes, starts with an existing solution and often only considers whether or not their solution will meet the need of the target market. That turns out to be a necessary, but not sufficient, condition. The innovator also has to consider, what would a rival do? What would a rival do who took a poll approach, who started with the problem? And tried to identify many different solution concepts, and picked the best one. And so if you engage in the push approach to innovation, a very important discipline is to say how would a competitor approach this problem taking the poll approach. If a competitor were starting from scratch, and addressing the problem of mobility for police officers, what solution might they come up with? That logic would probably lead you to conclude that a three wheeled solution is superior gives better performance at a lower price. And would suggest that you should probably pursue the three wheeled solution rather than taking your existing two wheeled approach and applying it to the target market. I've talked about two approaches to a new match between solution and need. One is a pull, where we start with the need and then create a solution in response to the need. The other is a push, where we start with the solution and go look for a need that it can address. But there's another flavor of push that I just want to describe for completeness. An example would be the Wright brothers and heavier-than-air flight. When the Wright brothers achieved the first flight at Kitty Hawk in 1903, they didn't have a particular customer in mind. There were no customers clamoring to fly around in heavier-than-air aircraft. They had a passion for flight, there was broad consensus among everyone really who thought about it that it would be an amazing thing if humans could fly like birds, but there was no specific market to it. So, to that extent, flight was pushed onto the market. It was pushed by enthusiasts who had a dream of flying without any particular market need in mind. Now what happens is that once that artifact, once that approach shows some promise, people start to imagine commercial applications and a whole industry may develop around the technology. But initially the solution is pushed onto the world without any particular application in mind. So just for completeness, I want to suggest that that's another approach to innovation. It's another flavor of push. It's going to not be terribly relevant to most of you. Very few of you will be going and inventing entirely new categories of technology, but I do want to recognize it as another way that innovation happens in society.