What you have written has nothing to do with probability or statistics per se. The first part of the article would more appropriately be titled “Orientation towards the fringe instead of the center”, and the second part, “One-shot or evolutionary innovation processes?”

Innovation Model #2 has been popularised by Google. One reason that it works for them, is that prototype Google products can be created very cheaply – by a single person working in their “free” hours. However, it is harder to see how individuals or small groups can build innovative prototype nuclear submarines (for example) in their off-hours for a few thousand dollars.

Although it is currently popular in the blogosphere to deprecate incremental innovations and uphold disruptive innovations as the solution to all problems, let us not forget that it is the incremental innovations that pay the bills and provide the 100$ million needed to seed the next generation of innovation projects.

All styles of innovation process mentioned in the article have their justification – different goals require different approaches.

Yes, real life is more complex than my simplistic model. And you raise some valid points. I believe that the correct answer is in fact a blended approach. Some bets are better fleshed out using a more traditional approach. However I still contend that most bets will come through the “card counting” model I describe.

I agree that not all innovations can thrive on micro funding (your point #2). Some may require more up front money. And there are some “big bets” (like building a computer chip fabrication plant) that may require lots of analysis before moving too far forward. But the same general “scaling experiment” philosophy can still prevail in most situations. The key is to institutionalize a mindset of experimentation – and to become masterful at defining small, valid, scalable experiments. This takes practice.

You will not lose “first mover advantage” (your point #1) because an iterative approach is in fact considerably faster…assuming the organization has streamlined the funding process and failure is not only tolerated, but embraced. The key is to address the cultural issues first before overlaying a new process like this (your points #3 and #4). And I recognize that changing a process is a lot easier than changing a culture. This is why the status quo typically wins out.

I will continue to write on this topic. In the meantime, if you are interested in reading about a wildly successful company who uses a similar approach, but “The Science of Success” by Charles Koch, the CEO of Koch Industries. As readers of my blog and books know, Koch Industries is the largest privately held company in the world ($90B in revenues) and has grown seven times faster than the S&P 500 for the past 40 years. Their Market Based Management philosophy is all about using a “build it, try it, fix it” approach – creating a series of small experiments that grow over time. Their philosophy is very “Darwinian” in nature. All reasonable ideas get seed money. Good ideas get more and start to cannibalize ones that aren’t performing as well.

D.D. Thanks so much for the thoughtful comment.