Guy Kawasaki - The Art of Innovation, Speech (ENG)

– Guy Kawasaki: The Art of Innovation –

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The following is the transcript of the keynote by Guy Kawasaki at CA World 2007, on April 24, 2007, at Las Vegas, Nevada, USA.

Good morning. My name is Guy Kawasaki and I am here to talk to you about innovation. I will give you a little more detail about my background: I worked for Apple from 1983 to 1987, I was Apple software Evangelist. So my job was to convince people to write Macintosh versions of their software products, as well as to create hardware peripherals for Macintosh. Back then the company was divided into various divisions; there was the Apple II division and the Macintosh division. The Macintosh division of course worked for Steve Jobs, the one and only Steve Jobs. To use the word loosely, it was a very interesting experience working for Steve. Because we worked for the co-founder of the company we had very special rules that are not part of Apple Computer; we had unlimited supplies of fresh orange juice at two dollars a bottle; we had massage therapist coming to our cubicles on Thursdays and Fridays, so that we could have massages while we sat at our desks; obviously this was before sexual harassment was a issue in the workplace, back then sexual harassment was a good thing as a matter of fact. And unlike any other part of Apple, we could fly first class for any flight over two hours. My interpretation of this rule was that the two hours begins from the moment you leave your apartment, so... I flew first class everywhere I had flied first class from San Francisco to Monterrey. You know?, back then as I said we were divided into divisions; the Apple II division was shipping just both loads of Apple IIs; the Macintosh was not yet shipping, so if you looked at a PML statement of Apple back then, they were the "P" and we were the "L". The interesting thing is that, I think the Macintosh division was arguevely the largest collection of ego-maniacs in the history Silicon Valley, and if you know people from Silicon Valley that is really seem quite a lot. I will give you one example of the manifestation of that egotistical nature and


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arrogance: the Macintosh division would not let Apple II division people into our building. So you can imagine working for one part of the company not being allowed to go into another part of the company? Of course the irony makes it even worst, because the Apple II division was paying for the building they were not being allowed into. Hence the Apple II division came out with a very good joke about the Mac division, which is: how many Mac division employees does it take to screw in a light bulb? And the answer is: one, the Macintosh division employee holds up the light bulb and expects the universe to revolve around him. So, I worked for the Mac division, I started several software companies, and then I became a venture capitalist, that is what I do today, but that is my day job, my real love in life is to speak like this, I love to give presentations, and I will tell you a little bit about the evolution of my speaking career: I first of course started listening to speeches when I began at Apple Computer, and I attended many many hi-tech speeches, many many CEOs of hi-tech companies speaking, and I have to tell you, I learned two things watching them speak: most hi-tech speakers suck, secondly, most hi-tech speakers have a very poor concept of time. They start late, they go long, they have really very little regard for the, sort of timeliness of the audience and the schedule. So basically the two things are that: hi-tech speakers suck, and you have no idea how much longer they will suck. And I find it reprehensible, so what I have done in my career is: I have adopted the top ten format for all my speeches, this way you can track progress through my speech, and if you think I suck, well, when I am on number five, I am half way done, you will know how much long. I hope you do not think I suck, but just in case you do. I am going to talk to you today about the art of innovation. You know, one of the temptations of any key note speaker is to sort of forget the past, or at least color it in the way that they choose, and the way it manifests itself is as if I am going to give you a speech that I did everything in my career correct, and right, and optimally, and now I am going to tell you to follow my example, to do as I did. I will tell you quite honestly that I made many many mistakes in my career. So this speech reflects as much as what I did right as what I did wrong. I hope that this enables you to understand innovation better, many of you come from very innovative companies, you may even understand it better than I do; but this is the top ten of the art of innovation. What I have learned as an Evangelist for Apple Computer, as the CEO of several software companies, and now as a venture capitalist.


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The first thing that I learned is that truly, truly, innovation is motivated by the desire to make meaning. That is: to change the world, to make the world a better place. To perpetuate good things, to end the bad things, to enable people to do things that they could never ever do before. As a venture capitalist in my current life, I can tell you that many entrepreneurs come to us and they say: “we want to make money; we want to quickly flip our company and sell it to Google in twelve months; we want to take our company public”. They think they are saying exactly what a venture capitalist wants to hear. In fact they are making a big mistake, because what we want to hear is how you are going to make meaning, how are you going to change the world. And in all of the companies that I have worked at, in all of the companies that I founded, in all of the companies that I funded, I have really noticed that the people who want to make meaning are the ones who are successful as innovators. The people who want to make money usually fail. Especially in startups, if you start with the desire to make money I think you will attract the wrong kind of co-founders; you will attract people who are MBAs, investment bankers, and, can I tell you? Those are the two worst kinds of people to attract to a startup. Now, meaning can be many things. For the Macintosh division it was to increase people creativity and productivity. For Computer Associates I would make the case that is to Unify and Simplify IT. That is the kind of things. That is the kind of statements that we want. I want to read you from an ad, that I thing it is the most meaningful ad that I have ever seen:

“A woman is often measured by the things she cannot control. She is measured by the way her body curves or doesn't curve. By where she is flat or straight or round. She is measured by 36-24-36 and inches and ages and numbers. By all the outside things that don't ever add up to who she is on the inside. And so if a woman is to be measured, let her be measured by the things she can control, by who she is and who she is trying to become because as every woman knows, measurements are only statistics, and statistics lie.” This is an ad for Nike women aerobic shoes. You are going to be my perspective customer. Not you, you. OK? So I am the VP of marketing of Nike. Turn around, look at me; I am the VP of marketing of Nike. Do you want to stand up? So I am the VP of marketing of Nike, and you are someone who I hope has a hundred dollars. All right? So I say to you: “listen, you give me the hundred dollars, I will give you two pieces of cotton, leather, and rubber manufactured under somewhat


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suspect conditions in the Far East. You give me the hundred bucks, I give you the shoes”. Thank you. Obviously Nike does not do that. Nike is in the business not of exchanging money for cotton, leather and rubber. Nike is in the business of empowering people. In this case, with this ad, they are empowering women. So with two pieces of cotton, leather and rubber, Nike is trying to make women understand liberation, power, efficacy, and independence. This is making meaning with shoes. And I dare say, if Nike can make meaning with shoes, surely you can make meaning with what you do. So step one of the art of innovation is to make meaning.

Step two, is to make a mantra. A mantra is a two or three word explanation for why you exist. “Unify and Simplify IT” is an example. Now, most of us, especially if we have an MBA, even more so if you work for a company like McKinsey or Arthur D. Little, or Bain or Brownie Consulting Groups, we have been trained to create mission statements, not mantras. Mission statements by contrast are sixty words long. Now, you are from all over the world, let me explain how a mission statement is made in Silicon Valley. The process is two days. It is at an off-site. You take the top 60 people in your company to this off-site. The off-site is always at a hotel that has a world class golf course. Very high correlation between mission statement and gold course. Two day off-site, the first day is run by a group facilitator, a meeting facilitator, an executive coach type, this is because usually the team doesn’t have anybody on its management team with leadership or communication ability. So you hire this outsider who knows virtually nothing about your company and your customers. Not to be sexist, but let’s say that her name is Moon Vim. Moon Vim is not only an off-site facilitator, she is also a Lamaze instructor, because the process of getting a team to work together is not unlike getting a couple to push out a baby. Lamaze instructor, executive coach. Two days; the first day is spent in cross functional teams. So you do not want all the sales people together, all the production people together, all the accounting people together, you want the accounting and the sales, and the engineering, and the support people in groups that are mingled. You are outdoors in the first day, and Moon Vim says “All right everybody, every group send up one volunteer”, one volunteer goes up, “everybody, that volunteer, get behind the volunteer. Volunteer, hold out your arms, shut your eyes, fall backwards into the arms of your team, because you are going to learn trust, you are going to learn communication, that is the first step to building a great company, and a great mission statement”.


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The second day, and now we are at the Ritz Carlton Half Moon Bay, second day at the Ritz Carlton Half Moon Bay, you are in a room, Moon Vim has a big pad of paper and a magic marker pen, and she says we are going to craft this mission statement. There are 60 of you here today; each of you gets to put one word into the mission statement. Mission statement is going to be good for the customers, for the employees, and for the share holders; if HR is involved in this exercise, it is also going to be good for the whales and the dolphins. And what you end up with is a mission statement that looks like this: “The mission of Wendy’s is to deliver superior quality products and services for our customers and communities through leadership, innovation, and partnerships.”

This ladies and gentlemen is the mission statement for Wendy’s. Don’t get me wrong, I love Wendy’s. My wife and I have four children; the children out number the adults in our family. We have gone from a men to men to zone, if you will. If you are a hockey fan, the kids are a permanent power place at our house. I love Wendy’s, the more children you have, the more you appreciate fast food. At our house, we consider French fries to be a vegetable. However, despite my love for Wendy’s I will tell you that I cannot believe this mission statement. I cannot believe that Wendy’s stands for something that has leadership, innovation and partnerships. I cannot believe that if you went to Trixie or Biff, who is working at Wendy’s and ask Trixie or Biff: say what is the mission statement of your company, I do not think any of them could repeat this mission statement. Further more I do not even think the founder of Wendy’s could repeat this mission statement; I know this is true, because he is dead. Instead of mission statements like this, if you want to be innovative you need to create a two or three or four word mantra that explains why should this innovation exist. Wendy’s should stand for “Healthy fast food”, that is what the company stands for, in three words; Trixie of Biff could memorize this; you know what, healthy fast food, that is what we stand for.


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Nike, Nike has a great customer slogan: “Just do it”, but its mantra, the reason why Nike exist, is “Authentic athletic performance”.

Fed-Ex, you know, Fed-Ex has vans, airplanes, they have an incredible IT infrastructure; Fed-Ex can tell you that your package is on the third shelf from the bottom, on the left hand side of our van, in the second lane from the right, going south on 101, in Mountain View, California, at twenty seven and a half miles per hour; can tell you all that; all of that is for “Peace of mind”.

And the fourth example is eBay. eBay stands for the “Democratization of commerce”, so that one sole proprietary in the middle of Indiana, or in the middle of Ohio, can sell stuff on-line as well as Amazon, as well as Wall-Mart, it is the democratization of commerce. Four examples using two of three words that explain their innovation. My suggestion for you is, as soon as you figure out how you want to make meaning, you figure out a two or three word summation of why that meaning should exist, to keep the team on line.


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Now, if I had not dissuaded you from focusing too much on mission statements, let me at least give you the world’s best way to create a mission statement. All you need to do is go to the Dilbert Mission Statement Generator website. You do not even have to click to our advertising, it is all there. I will read you one: “We exist to professionally build long-term high-impact sources…” I have to take a breath here “…so that we may endeavor to synergistically leverage existing effective deliverables to stay competitive in tomorrow’s world.” That is your basic two day off-site at the Ritz Carlton Half Moon Bay, McKinsey twenty five thousand dollar, mission statement… for free. I have a friend who worked at an investment bank, he said they had an off-site with Moon Vim, and one of the exercises was everybody came up with a mission statement for the organization, submitted it, and the people voted; he could not come up with one, so he went to this site, grabbed one, submitted it, he has came in second in the vote. This is why you should never work for an investment bank.

Point two is “make meaning”; second point is “make mantra”. The third point is to “jump to the next curve”. This is what defines innovation. It is not about doing things slightly better, ten percent fifteen, twenty, twenty five percent better, you should aim for ten times improvement. It should be on a different curve. You should go from telegraph, to telephone, to VoIP. That is the kind of curve jump. If you are a letter quality printer company, a Daisy-will printer company, you should not aspire to having more font sizes of Helvetica next year; you should aspire to go from letter quality printer company to Daisy-will printer company, to laser printer company. Let me give you another example, having to do with ice: in the eighteen hundreds there was a thriving ice harvesting industry in the north eastern part of the United States. During the winter Bubba and Junior would go out and cut blocks of ice. Bubba and Junior’s idea of innovation was: we could have a sharper saw, he


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could have a bigger saw, we could add more horses to pull the saw; that is how we can improve. The next curve in the ice business was the ice factory. The ice factory was a major technological breakthrough, because it enabled you to freeze water in any city, any time of year; big change, big improvement. The third curve was the refrigerator curve; this meant that now you did not have to have the ice mean deliver ice to your house, you did not have to go to the ice factory to buy ice; you had your own PCs if you will: Personal Chillers. The key here, and the very interesting thing about these curves, is this: none of the ice harvesters became ice factories, and none of the ice factories became refrigerator companies, because most companies do not jump curves, they stay on the same curve; bigger sharper saw, bigger ice factory, more colors of front panels for refrigerators. Very few companies jump curves; the key to innovation is to set the perspective right, what is true innovation it is not about doing something ten percent better, it is about doing something ten times better; getting to the next curve, not ducking it up on the same curve.

The fourth thing is to roll what I call the DICEE; DICEE is an acronym. You know, one of the problems with key note speeches is that two days from now you are going to be back at your house and, many of you are taking notes, so you will look at these notes and will say “aha, Guy said to create great stuff that jumps curves”, and you are going to say yourself, you know: “thank God for CA that brought me to this conference because until I had gone to that conference and heard Guy’s speak, I was going to create crap!, and then Guys said to create great stuff that jumps curves… now I know! Where was me? I was going to create crap, thank God for that enlightenment” Well, the problem is that I want to provide you with more than this though of “create great stuff, well duh!” as opposed to what? I will like to define the elements of what I think makes a great product or a great service: it is DICEE.


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The “D” stands for Depth; great products are deep. They have lots of functionality. This is an example: this is a fanning Reef. Believe it or not, this is a sandal. This sandal, like any other sandal in the world, protects your feet. Duh! There is also a second function to this sandal: there is a little metal clip near the mid soul… that mid soul clip has a very specialized function: it opens beer bottles. Every other sandal in the world does only one thing: protects your feet. This one has twice the functionality, it is deep: it protects your feet and opens you beer bottles. Deep. Think of something like Interscope. Very deep product, right? allows you truly to analyze what is going on with an application. Depth is the first quality.

Now, the people at Reef are not content to just open beer bottles, recently they introduced the second model of sandal, and this is called “the dram”. The dram has a little container at the mid soul that holds three ounces of liquid. Just enough to keep the TSA happy, but three ounces of liquid. Now, admittedly once of the consequences of wearing either the fanning or the dram, is you really have to be careful where you walk, but truly these are deep sandals. So the first quality if depth.


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The second quality is Intelligence. Here is a simple example: this is the Panasonic flashlight. At my house we have flashlights and batteries, and guess what? The two do not work together, because over time, the batteries that we have left are the ones that didn’t go into the flashlight and work, right? The ones that did work went into the flashlight, were used up and thrown away. So we have this sort of arbitrage moment of flashlights and batteries. Everybody has that problem. Panasonic figured out something very intelligent: they built a flashlight that takes three sizes of batteries. It triples the probability that you have the right size battery for your flashlights. Show some intelligence. Great products show intelligence; they anticipate what you need to do.

The “C” stands for Complete. Complete means that it is a product, but it is not just the digital download, it is not just the car, it is the Customer Support, it is the OEM, the on line support, the strings of enhancements that come out, it is the after sales service of your car; it is all those great things that make Lexus, the totality of the Lexus experience, so wonderful. Great products are also complete; they are not defined strictly as the physical thing or the digital download, or the source code. It is the total picture.

The first “E” is for Elegance. Great products are elegant, you look at them and you say “Mhm, somebody was thinking, I do not even need a manual, I can figure this out”, like an iPod.


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And the second “E” is for Emotive. Great products generate strong emotions. You love a Harley Davidson or you hate a Harley Davidson, very few people are indifferent to Harley Davidson. So two days from now I hope you will remember I said not only to create products that jump curves, but also products that embody: Depth, Intelligence, Completeness, Elegance, and Emotiveness; that is what defines great innovation.

The fifth thing is stolen from a song by Bobby McFerrin. Bobby McFerrin song was “don’t worry, be happy”, I would make the case that great innovation requires that you “don’t worry, be crappy”. This is a picture of Macintosh 128 K, the first Mac that we shipped. I can tell you now looking back, this product had elements of crappiness to it. It was 2.500 dollars; it had 128 K of RAM, we thought that was an ocean of RAM… triple of what was on an Apple II, what would people do with all that RAM?; it had a 400 K floppy drive, what would people do with all that storage? But there are elements of crappiness to this product: for one thing, thanks to my efforts, there was no software; there was also no hard disk, which is OK, because if you have no software… what would you copy? There is no slots, no color, no fast laser printer, two smallest screens, lots of crappiness to this, but it still was a revolutionary product; it had jump the curve from MS-DOS to Macintosh. I will tell you with high sights: if we have waited for the perfect world, the perfect world of cheap RAM, fast CPUs, big color monitors, slots, Wireless, Ethernet, all the good stuff, we would have never shipped. I think the way it works in technology is: you ship and then you test. You ship and then you test. Version 1.0 of the revolution means never having to say you are sorry. Now, note well: I am not saying “ship crap”; I am saying “you can ship something that jumps curves with elements of crappiness to it”. If you wait for the perfect world, where


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everything is debugged, and everything is put together, you will never ship and the world will pass you by. The fifth lesson that I learned about innovation is “don’t worry, be crappy”.

The sixth thing that I learnt is you should not be afraid of polarizing people. You should create a product or service that some people love and some people hate. It is OK. Many try to create this product that is perfect, perfect for all age groups, all genders, all religions, all everything, and they end up creating mediocrity. If you try to serve too many masters you will create mediocrity. This is a picture of a Toyota Zion XP. When you look at this car you can have one of two reactions: you could say “Aha, I am a twenty two year old surfer, this is perfect for my surf board, for my skateboard, for my snowboard, and my golden retriever; life is good with this car”; I am fifty two years old, four children, I look at this car and I say “you know what?, I do not understand Toyota… with all the money that you have, why did you hire someone from Volvo who got fired to design this car?, because going back to the ice analogy, this is a refrigerator with wheels on it!” If Toyota had try to design a car that makes me happy, fifty two years old with four children, and one guy, one gale, one golden retriever, one surfboard, it could not be done. You have got to pick one. I am not saying you should intentionally piss people off, I am telling you however that you should not be afraid of pissing some people off. What you want is some people to love it and some people to hate it. The worst case is if everybody is indifferent to it. Polarize people. I will give you another example: how many of you have TiVos in this audience? Are lots of you. I love TiVo. I am the only people from California who admits that I love to watch TV. I really. I watch two hours of TV every day. I love TV. And I will tell you some of my favorite programs: I love “Boston legal”, I love “Boston Legal”… Danny Crane is my hero; I love “24”, I love “The unit”. We are seeing a trend here, I basically love movies that really do not care about do process. Now, I love TiVo because I travel a lot, and it obviously time shifts my programming for me; because on any given Tuesday I am out, and I can’t watch “Boston legal”. Now I love TiVo; probably all the people who would have TiVos love TiVos, but there are people who hate TiVos, principally: advertisers, and companies who pay for advertising, because I do not about you, other TiVo owners, but I just watch commercials one day a year in January; the rest of the time I have not watch a commercial since January. Do not be afraid of polarizing people. You know? one of the reasons why I love my TiVo is the “thirty second skip ahead” feature, right?, that is the feature that most upsets advertisers, because I can fly through commercials with four clicks. Don’t be afraid of polarizing people.


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Pick one: fifty two year old with four children, twenty two year old with one golden retriever. Pick one, and make him happy.

The seventh thing is to “let a hundred flowers blossom”. I stole this from Chairman Mao. “Let a hundred flowers blossom” in my context means that at the start of innovation, at the start of the revolution, you may have whiteness of a very interesting phenomena, which is, people who are not your intended customers are using your product. Many companies freak out when this happens: “My God! all this people are using our products that we did not anticipate as customers… something is wrong!, call up Moon Vim, book the Rich Carlton Half Moon Bay, we need another off-site to figure out what is going wrong! Why are all this people buying our products? They are not our intended customers, and further more: they are doing things that we did not intend also.” My first piece of advice for you if you are ever fortunate enough to have this happen, is when this happens: take the money. Take the money. The second thing is to ask people who are buying your product or service: why are you buying our product or service? This is very different than asking people who are not buying your product or service: why are you not buying it? I believe that is futile When you ask those people why are not you buying a Macintosh? In 1984, they will say: “well, if you only have Lotus 123, and if you only have letter quality printer driver, we would be a lot more interested”, and you go back and you fix those two issues, and you take it back to them, and they will come up with another five excuses. “Let a hundred flowers blossom”, you know with Macintosh we though we had all figured out in the mid 80s, because in the mid 80s what would a personal computer had to do? spreadsheet, database, word processor. An if you were a Macintosh user in the mid 80s you would know that we were zero for three there. The product that saved Apple Computer was Aldus PageMaker. Aldus PageMaker created a field of flowers called “desktop publishing”, and desktop publishing saved Apple Computer. If it was not for Aldus PageMaker and desktop publishing, we would all be listening to cassette tapes and Sony walkmans right now. I believe that Aldus PageMaker was a gift from God to Apple Computer, because it saved Apple. And I believe in God. One of the reasons why I believe in God is there is no other explanation for Apple’s continued survival. Let a hundred flowers blossom. You may think you know exactly who is going to use your product. One example from CA is “Clarity”, right? Clarity was intended for IT to focus and use IT resources better, but come to find out it was such a


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powerful tool it could also be used for Product Management. You see, that is letting a hundred flowers blossom. Lets say that you were the Clarity Product Manager, and all that you cared about was selling it to IT for their use, and then you find out that Product Management is using it; “Oh, my God!, what is wrong, call up the Ritz Carlton and Moon Vim, we need to get this Product Managements types to stop using Clarity because it is not intended for them. Take the money. Take the money. Let a hundred flowers blossom.

The eighth thing is to “churn, baby, churn”. This is stolen from the Black Panthers. The Black Panthers said “burn, baby, burn”; they were revolutionaries of a sort too, but I am telling you that to be a successful innovator, you need to “churn, baby, churn”. I am saying: ship, then test. I am saying: ship that thing that is ten times better. I am not saying that once you ship you stop. Version 1.0 of the revolution must become version 1.1, 1.2, 1.3, 1.4, 1.5. 2.0. Honestly, I think this is the hardest lesson for the revolutionary to learn, because part of being a revolutionary requires that you are in denial. You need to be in denial as an innovator and a revolutionary, because to a large degree the status quo is going to try to grind you down. They are going to tell you: “it can’t be done, it shouldn’t be done, it isn’t necessary, customers aren’t asking for it, we aren’t asking for it, just give us better, cheapest, faster, status quo”. So you need to ignore those Bozos. But as soon as you ship, then you need to start listening to customers again. What is wrong with version 1 of the revolution? How do we turn this product to make it better for you? The hardest lesson of all for innovators to learn.


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The ninth thing I think is all the marketing that you need to know, which is the nitch thyself. It is a very simple chart: there is a vertical axis measuring your ability to provide a unique product or service; the horizontal axis is the value of that product or service to the customer. I will kill the suspense, OK? we are going to end up high and to the right. Because everybody ends up high and to the right. That is the corner you are supposed to end up in. I swear, at Garage, if an entrepreneur ever came in and said they were low and to the left, we would fund them right there; it would be so interesting to hear a company that finally said: we are low and to the left! We are going to end up high and to the right. Let me go through the other corners first.


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The first corner is where you create something of great value to the customer, but many other companies do it. In that corner you have to compete on price; you have to compete on price. Many people make the same kind of computer; you have to compete on price. You can obviously still make money there, but it is always about price.


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The second corner is where you create something of no value to the customer, but only you do this; in that corner you are just playing stupid.


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The next corner is even worst, the next corner is where you produce something of no value to the customer and there is a lot of competition doing the same stupid thing. This is a picture of dog food. Because buying dog food online personifies this corner, the dotcom corner. I do not know if you remember, but there were ways to buy dog food online about five or six years ago, right?, and here is where the pitch for buying dog food online: it is a simple problem, at one end of this distribution path is a horse, at the other end is Rocky, your dog. So you need to get this horse, you need to kill the horse, you need to put him in a can, you need to get the can to the pet food store, then you need to get the owner to the pet food store to buy the can of dead horse, to give it to Rocky. So: dead horse to Rocky’s mouth. In the middle of this path was this thing that didn’t really add value, we thought, called the pet food store. Why do you need the pet food store between killing the horse and getting it into Rocky’s mouth? Why do not we dis-intermediate this stupid pet food store? With patent pending, curve jumping, paradigm shifting, Google ad-sense optimized, whatever kind of IT infrastructure, get the dead horse into Rocky’s mouth more efficiently. Therefore we can discount dog food twenty five percent, because we have taken the stupid pet food store out of the equation. The only thing we forgot is that dog food weights so much, that you could discount the dog food, but then you would have to charge so much for shipping and handling, effectively will cost the same or more than going to the pet food store. Hence, buying dog food online really did not add any value to the customer’s life. And thanks to stupid people like me there were pets.com, mypets.com, epets.com, ipets.com, lastonepets.com, there were sixteen ways to spend more for dog food online than if you went to the dog food store. This explains the dotcom phenomena. So the corner where we would want to be in is high and to the right. This is the corner of your marketing… you wake up every day… where lets start with engineers: if you are an engineer, you wake up every day thinking: how do we create a product that is unique and of high value to the customer? If you are the marketing person, you wake up every day thinking: how do we convince the world that it is unique and valuable?


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This is one example: this is Fandango. As I told you, I have four children; at any given moment one of them has a guest at our house that sleep over. As you can imagine for a person that loves TV, we love movies; we go to all the first round movies. Getting five kids into a mini van is an exercise that takes at least fifteen minutes. So trust me when I tell you: you want to know before you go that you have a ticket. Further more, you would like to skip the ticket buying line. Fandango enables you to buy your movie ticket at home, so you know you have a ticket, and enables you to skip the movie ticket buying line, and go straight into the theater. For someone like me, Fandango is high and to the right. Very valuable service, and the only way you can do it in my hometown is Fandango; high and to the right.


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The second example: this is a Breitling Emergency watch. This watch at the five o’clock position, do you see that big knob? If you pull that big knob out by unscrewing it, it puts out an antenna, that antenna puts out a signal on the emergency broadcast system. That signal is caught by airplanes flying around. This means that if you are in trouble, if you are lost, if you are hurt, you are in the wilderness, if you are a snowboarder, a skier, a camper, hiker, anything like that, and you are lost, and you are really up to creep, you pull that out and broadcast out an emergency signal. You do not do this because you took the wrong exit on the freeway, OK? this is a serious, serious thing. This is the only watch that has something like this, and this watch literally could save your life if you are one of those kinds of people.


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Another example: this is a Smart car. This Smart car is coming to the United States next year. There are thousands of different models of cars. Every one of them can park parallel to the curve. The Smart car is the only one that could park perpendicular to the curve. If you really have tight parking, you buy a Smart car, because you can park perpendicular to the curve.


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And this is my last example: this is a LG Kimchi refrigerator, for those of you who really love Kimchi. A couple of things about Kimchi: it stinks, and it needs to ferment, the more it ferments the better it is. Most refrigerators are not very well suited for Kimchi; they are too cold, and if you put Kimchi in them, everything else stinks. So what you need to do is you need to buy the LG Kimchi refrigerator, which is optimized for the fermentation and storage of Kimchi. LG clearly has understood this lesson, because they also make a special microwave oven for the mid-east. All of us have microwave ovens with a dedicated button to pop-corn, what the LG microwave oven for the mid-east does it is that is has a dedicated button to warming Shish ka bubs. So my point here is that the holly grail of marketing, and innovators always have to be thinking about marketing, is to create an innovation that is high and to the right, that is unique and of great value to the customer. I will explain this also in political terms: what I am saying essentially is that your product, your service, needs to be like our president, George W. Bush, high and to the right. High and to the right.


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The tenth thing, because innovators always have to pitch, they have to pitch for money, they have to pitch for approval, pitch for sales, pitch for partnerships, pitch for recruiting; to be an innovator means you are pitching. Now, I have something called Meniere’s decease. Meniere’s decease has three symptoms: tinnitus, which is a constant ringing in one ear; hearing loss on this ear; and a third ramification of Meniere’s decease is that you sporadically have attacks of dizziness There are many things, and I am serious, about what causes Meniere’s: excessive caffeine, excessive salt, excessive stress, allergies, acoustic neuroma, lots of theories; I have another theory about what causes Meniere’s: I am a venture capitalist; as a venture capitalist what do I do day in and day out? I listen to entrepreneurs pitch me. Every one of them comes in for a one hour meeting with 60 slides, because they are such eloquent people that they figure they can rip through one slide per minute. Every one of these PowerPoint presentations has a bunch of slides that say “we only need one percent of the market”. There are 300 million Americans, one in four owns a dog, that is 75 million dogs; each dog eats two cans of dog food per day, that is 150 million cans of dog food per day; how hard could it be to get one percent of 150 million cans of dog food per day? How hard could that be? we have a proven management team who used to work at, you know, Pet-Mart, we have a proven technology, we have a proven business model, life is good. I will tell you, I have heard some real doozies as a venture capitalist. I will tell you three of them. The first, one company wanted to raise money in order to buy Israel, to turn it into an amusement park. A second company wanted money to build a geodesic Dome over Los Angeles, to curve air pollution; it is not clear if they wanted to keep the air in or out, but they wanted to build a geodesic Dome. The third one, and the one that is probably the most funny, is because it has an element of sort of veracity and truth to it; you know building a geodesic Dome over L.A. is like “are you crazy?”… buying Israel, “are you crazy?”… but this one… let me explain: they come in and they said: “we have this patent pending, curve jumping, paradigm shifting way to prevent drowning, drowning is a growth business; according to Forbes, by the year 2010 drowning will be a ten billion dollar industry. The reason why drowning is a growth industry is because as we are having disposable income, Bubba and Junior are buying more boats, when more dumb people buy more boats, more people get down. This is a great business to be in! The fundamental pain that we are trying to solve is that you cannot see the person who is drowning in the water”. Remember “the guardian”? The Kevin Costner movie where he is a coast guard, rescue diver, or whatever? So, you know, picture this: it is night, it is a darken stormy night, rain, wind, everything, high waves, everything, Kevin Costner is in the coast guard helicopter, he is looking down into the ocean and he is trying to save Bubba from drowning. The problem that the coast guard has is: it is very hard to spot Bubba in the middle of the night in the storm. So this company has already met with the coast guard, and the coast guard is very interested in forming a partnership. Because this company is going to help the coast guard, Kevin Costner, find Bubba, who is drowning. This is going to be cool, this is going to be some GPS chip, this is


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going to be some thing in a watch, that takes the signal, bounces it to the satellite, the satellite then bounces it back to the helicopter of the coast guard, and Kevin Costner can look down into this murky, windy, rainy, high waves, just untenable situation, and figure out: there is Bubba, within 5 centimeters, there is Bubba, that is the way we are going to save him. So I say to them “show me this great new technology”, and they say “here it is”, and they give me a role of red tape; and I say “what are you talking about?...”; “this is it, the coast guard is so interested in partnering with us”, I say “why?”, and they say: “well, what happens is, if you are drowning, you take this thing, you strap it in your wrist and you throw it out, so now there is 10 yards of red tape, and Kevin Costner in the helicopter can spot you because of the role of red tape that it is now unwound”. And I am having this out-of-body experience: “you want 2 million dollars to build a system of red tape for people who are drowning to throw out into the water so that the coast guard helicopter can see the red tape? Is that what you are saying?”, “yes…” This is my life, so is it any wonder that… my head is ringing? I am going deaf! I get dizzy every once in a while. That is what is causing my Meniere’s. So, I created the 10/20/30 rule, in order to prevent an absolute epidemic of Meniere’s decease.

The 10 in the 10/20/30 rule is the optimum number of slides in any pitch, for anything: money, sales, partnership, recruitment, it is 10 slides. That is all that human mind can handle.

The optimum amount of time you should take to present those 10 slides is 20 minutes. Sure, you may have a 60 minute meeting, but not everybody is using a Macintosh, you know it is going to take you 40 minutes to hook it up to the projector and make it work. Let’s say it is working, or you are using a Macintosh,


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you have 40 minutes, you want 40 minutes, you want to rip through your presentation and then have time for discussion.

And then the “30” part of the 10/20/30 rule is that the optimal font size for a pitch is 30 points. 30 points does two things for you: one is that forces you to put just the essence of the text; you have to really think through “what exactly do I want to say because I do not have a lot of space”; the second thing it does is that makes that so the audience will pay attention to you and not the slide; because if you use an 8 point font or a 10 point font, it is because you want to put a lot of text; the reason why you put a lot of text is because you need to read the slide. What happens when you read the slide? Is that the audience very quickly figures our “this bozo is reading his slides; I do not need him; he is just reading it; I can read the slides slightingly faster than he can speak the slides”. The problem with that is that you loose your audience. Most of the time when you are pitching, you are pitching to people who look like that. As a rule of thumb, if you find this too dogmatic, figure out who the oldest person is in your audience, divide his or her age by 2; that is the optimal font size. 60 divided by 2 is 30. Now, maybe you work for a younger company, maybe you do, so if you are pitching to 16 year olds, God bless you, use the 8 point font. Generally speaking 30 point font is the way to go. 10 slides, give a bull in 20 minutes using a 30 point font.

And now the eleventh point, as a bonus for my friends at CA World is “do not let the bozos grind you down”. Because the bozos will try to grind you down. There are two kind of bozos in the world: disgusting, body odor, danger pocket protector, rusty car bozo, a loser of a bozo; that bozo says “can’t be done, shouldn’t be done, isn’t necessary”… easy to ignore that bozo; you say to yourself “his person is a loser, why should I let a loser pertain what I try to do?”. That is not the dangeroust bozo; the dangeroust bozo is svelte, the dangeroust


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bozo drives a German car, the dangeroust bozo has a brighten watch or a Rolex watch, plays golf at the Ritz Carlton Half Moon Bay, famous, rich, and you think “oh, this person is famous and rich, therefore this person is smart”; that is a big leap, that is a big leap. And so you are tempted to listen to this bozo, and if this bozo says “can’t be done, shouldn’t be done, isn’t necessary”, you might listen. Let me show you some examples of “bozosity”; the document why you should never listen to bozos:

“I think there is a world market for maybe five computers.” Thomas Watson, while being the president of IBM, eligibly said this in 1973. A world market for five computers. I have five computers in my house today. I have all the computer he anticipated in the world in my house.

“This telephone has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”… inherently of no value, I love the word inherently; not temporarily, inherently; inherently of no value to us. Western Union internal memo, 1876. Now, to be fair with Western Union, in 1876, if you had the first telephone… who would you call? But still. I think Western Union today should be what PayPal is, right? PayPal? Electronic transfer of funds? Western Union, telegraphing of funds. It would make sense. But, you know what?, if we go from telegraph, to telephone, to Internet… it is hard to go from telegraph to Internet if you ride off telephony in the middle, that is just too big a castle, to use Geoffrey Moe’s terms. Maybe the strategic direction of Western Union in 1876 was: in order to expand our market potential, why don’t we teach everybody the Morse code? How hard could that be? A telegraph in every home, all you need to do is learn the Morse code.


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“There is no reason why anyone would want a computer in their home”, Ken Olsen founder of DEC said this in 1977. Ken Olsen was a stud. He was a great entrepreneur, a great innovator. He was very successful revolutionizing the mainframe business and making it the minicomputer business, but he could not embrace the personal computer curve, because he was too successful already on the minicomputer curve. I dare say if Steve, or Woz, saw Ken Olsen and told him: you know Ken, you believe in these terminals connected to a central brain, we believe in little edibility brains; these edibility brains are small, cheap, easy to use. They are so small, so cheap, so easy to use, that you could have one in your house Mr. Olsen”. And Mr. Olsen would say “there is no reason why anyone would want a computer in their house; you want to balance your check book? drive back to the office, it is quick and running on a DEC minicomputer, what is the problem?”

This is my last quote: “It’s too far to drive, and I don’t see how it can be a business”. This is the quote that I authored, when I was asked would I like to interview for the CEO position of a new startup funded by Sequoia Capital, I told them this answer. My wife and I were living in San Francisco; this company was down at Stanford, it is an hour each way, commuting. My wife and I had one child at that point, she was pregnant, so she was, using your terminology, she was in beta with our second child. However, she shipped on time, and with no bugs. So I told Michael Moritz from Sequoia Capital: “you know what?, this company is too far away, I do not want to drive that far every day, and I looked at their website… I do not see how this could be a business”. So the question is: what company is this? the answer is: Yahoo! So I was offered the opportunity to interview for the CEO position of Yahoo! and turned it down because it was too far to drive, and I didn’t see how this could be a business. You think this bothers me today?


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So work with me here… lets suppose I took the interview, further more lets suppose I got the job, the way it would have worked back then is I would have had a four-year vesting schedule, for 10 percent of the company. 10 percent because I would have been the first adult in the company, right? And the option strike price would have been, you know, 10 cents. So back then, life was easy, right? the strike price is 10 cents, you sell it for 400 dollars. There is no option back-dating scandal, it is very simple: 10 cents, 400. You make 399 dollars an 90 cents. What does it matter if you stroke the price on Monday, Tuesday, Wednesday, Thursday, you didn’t have to make up board meetings that did not exist… life was much simpler then: 10 cents, 400. So, lets say two years into the four year vesting schedule I pit a principle out... emergency board meeting: “Guy, we need someone to take Yahoo! to the next level. We need a true adult. We need someone who can go to New York and stand toe to toe with Barry Diller. We need someone who can go to LA and stand toe to toe with the content providers, the talent. So Guy, we are replacing you as the CEO of Yahoo! as up today. And I would have said, very calmly: “you know? lets understand something between you and me, this is California, I am Asian-American… you cannot fire me! I am a minority. There will be a rode for termination law suite on your desk this afternoon. Tomorrow morning, when you turn your TV on, turn it on the CNN, because there will be 60 little Japanese ladies picketing Yahoo!’s offices”. And they would say: “you know Guy? time out, remain calm; what would it take for you to go away quietly?”, and I would have said “why don’t you just accelerate my vesting? I am two years into four-year vesting… just vest the whole thing”. They would have said “OK”; so by my calculations this response cost me 2 billion dollars. You know? 2 billion here, 2 billion there, it heads up. You know? after a while you do not need to work anymore, you do not need to fly to Vegas to make speeches, life is good, all right? So I have been thinking about this for twelve years now. Why was I so stupid? Why was I such a Bozo? And I have come to this conclusion, after much analysis: for the love of my wife, to be there as my child were growing up, I made the right decision in not commuting two hours a day in dedicating my life to the success of Yahoo!, so I made the right decision as a father and a husband. Most audiences clap when I say this; except the ones in Silicon Valley. In Silicon Valley the go “Hu? Guy?, I don’t get it. What?” The problem is: this wonderful theory of being a good father and husband explains the first billion. It is the second billion that pisses me off. Because the second million means that I too was a bozo. I had Ken Olsen disease. He was successful in the minicomputer curve, and could not embrace the personal computer curve; I was successful in the personal computer curve, I could not embrace the Internet curve. I was a bozo! Further more, when I looked at Yahoo!, which was nothing more than Jerry Yang and David Filo favorite website collection, I looked at that and I said “What’s the proven team? What? They worked at Stanford book store during the summer? What’s the proven technology? There’s no technology, it’s collect favorite websites. What’s the business model for Yahoo!? They are going to sell advertising to ARPAnet scientists?” So I turned down the opportunity to work as


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the CEO, or at least to interview for the CEO of Yahoo! Don’t let the Bozos grind you down.

And this is my final slide, three pieces of information: I have a blog where I cover topics like this: blog.guykawasaki.com; for copies of this presentation just send an email to [email protected]; she will be happy to send it to you; and the third thing is I love stock photography, you a photo in everyone of my slides, these photos came from iStockPhoto. Nice Calgary a product company. Calgary is in a big depression because they lost with the red wings last night, so give iStockPhoto a shot. The way I use iStockPhoto is, let’s say you wanted to illustrate a thing like stupid people who create products that are no value to the customer but only they do it, so you go to iStockPhoto, you type in the word stupid, you will find 800 stupid looking people. You buy the photo, hi-res, 3 bucks, unlimited royalty free. Lets say you want to illustrate the concept of “letting a hundred flowers blossom”, go to iStockPhoto, type in flowers, you will find 5 thousand flowers, 3 bucks, hi resolution, unlimited use. I love iStockPhoto, I am going to evangelist for iStockPhoto. So let me summarize: I think the art of innovation starts with the desire to make meaning, to make the world a better place. Then you need to create a mantra; this mantra is two or three words to explain why you exist: to make IT part of the process of innovation, to simplify IT, to make IT better, whatever it is. How do you make the mantra? And be sure this thing that you are doing is jumping curves. It is not just doing something 10 to 15 percent better, it is doing something 10 times better. It is going from ice harvester, to ice factory, to refrigerator, to biotech. It is jumping curves. Don’t worry, be crappy; that first permutation, if it is 10 times better, if it is a different curve, doesn’t have to be perfect. But you do have to churn, baby, churn; taking 1.0, making 1.1, 1.2, 1.3, 1.5, 2.0; you need to do that. Don’t be afraid of polarizing people. I am not saying you should piss people off


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on purpose, but you should not be afraid of pissing some people off. Create things that attract a group very strongly. And get high and to the right; unique product or service, of great value to the customer. That is where meaning is made, that is where margin is made, that is where money is made, that is where history is made, that is the corner: high and to the right. And to do all these things, you have to keep one thing in mind constantly: do not let the bozos grind you down, because the more they tell you “it can’t be done, it shouldn’t be done, it isn’t necessary”, the more you may be on the things. I wish I can tell you that the more innovation you have, the less you are going to have to deal with bozos, it is actually the opposite; the more innovative you are, the more you will have to deal with bozos. They are going to try to grind you down. Don’t let the bozos grind you down. And that is the art of innovation. Thank you very much, thank you very much. Thank you.

Documents

Guy Kawasaki - The Art of Innovation, Speech (ENG)