Axial - Inventors

Agency for great inventors

Inventors are consistently at the forefront of business but historically have trouble accruing value. Unique business models often use a new technology to unlock value that was previously constrained. Unfortunately, the business models usually constrain themselves by not being open to new inventions and the subsequent search for an alternative model. No wonder many of important businesses over time end up fading away after a few decades. However, as long as these businesses make the transition from creativity to efficiency then new models can emerge to fill the emerging niches. In the complex dynamics of business, inventors always have a place at the upper echelons of society and in particular, the potential to create a business model with various structural advantages that are near-impossible to replicate. As a result, inventions have a important role to play in not only creating businesses but keeping them relevant. Taking an invention to create a business is a complex task but history would show it is incredibly worthwhile and lucrative.

A business model is centered on valuable tasks. There is a perpetual emergence of new problems often coming from the invention/business model itself. Technology is a tradeoff between positive and negative consequences. The coal plant has given us electricity but polluted the air. The Internet has connected the world but reduced trust. The corn fields have fed the world but dried up the ground. From Henry David Thoreau: “[All our inventions are] but improved means to an unimproved end.” As a result, any business model needs explicit design to maximize the benefits of an invention while doing everything to mitigate downsides. History would suggest new technologies have driven economic growth, but also could play a role in growing inequality in our society. Simply, data would show that the ability to generate new wealth and distribute fairly ought to grow the number of inventors thereby generating even more wealth for more people. Ultimately, the inventor should be put on top of the societal stack where every policy is meant to maximize the potential of each individual.

Patent rates versus parent income. Source: EoO

There is accelerating change but the problems are no more complex to solve than they were centuries ago. The invention of steel brought on new products unimagined but created the machines of war that WWI and WWII were built upon. The personal computer and Internet themselves brought high levels of progress for companies and individuals while at the same time being used to intrude into the lives of entire populations and making people equivalent to numerical objects. Really, new inventions and models are created to solve these new problems. Despite the incredible bearishness on the US since its beginnings has been partly overcome by creativity accepted represented by the inventors punching above their weight in the country. At any given frame of time, technology may seem like the creator of societal problems but new inventions are inextricably linked to their solutions.

First-generation immigrants make up 13% of the US population and 16% of the US workforce, but 35% of inventors. Map of the source of inventors to the US. Source: ITIF

Countries with the most immigrant inventors (2000–2010). Source: Atlas

Inventors come in many forms — scientists (i.e. Herbert Boyer), entrepreneurs (i.e. Earl Bakken), engineers (i.e. James Watt). For most of history, parts of society have met these inventors with skepticism. Maybe it is the same response ancient people had toward shamans. Really new technologies are often perceived as magic. Parts of this response are justified: technology makes us believe that wisdom from the past is meaningless. Technology often destroys more than businesses and jobs, it also breaks down culture and values. Inventions are usually radical discontinuities that bring together seemingly disparate ideas (i.e. wide epistemic base). Some inventions are breakthroughs, others are really a bundle of tweaks from one inventor, or a series of them (i.e. establishment of genetics between Mendel and Morgan). Just like zooming in constantly at a coastline, there is no end only scale.

Many of the important companies around the world were built upon a single invention. Sony made low-cost radios. Goodyear’s name comes from it’s eponymous founder Charles Goodyear who invented vulcanized rubber after years of trial and error. Ultimately, great inventors make something people want. But a great company cannot survive off one invention alone. A unique design must emerge. In The New, New Thing, a business model is referred as “a term of art.” Like art, a great business model is simple to recognize but hard to define. A business model represents the logic of a company — the structure, governance, and history of transactions creating value for stakeholders. Core structural advantages such as exclusivity and distribution emerge from business model design. When these advantages become embedded into a business model, competitors may know a company’s secret and still cannot replicate it.

Inventors create a lot of value but fail to accumulate it most of the time. This really is a business problem rather than a technology one. Conventional wisdom suggests a business ought to come up with new products to make older versions obsolete. Rather, successful businesses identify new needs and build products to meet them. Instead of focusing on disruption, the most important companies focus on need/problems.

Eastman Kodak had a great business around photographs. The company failed to make the transition toward Internet-centered products. Likely, the business accepted the fallacy of innovation — funding initiatives around disruption rather than studying real customer needs. In contrast, a great business, Netflix, was built around DVDs. Overtime, the company transitioned toward streaming. Truly, the business was focused on what customers actually wanted. Users want video on demand and are agnostic toward the distribution method preferring the one with the most convenience. A business centered around electroplating would only exist today if it focused on customer needs beyond trinkets. Against an emerging threat from Nest, Honeywell used its advantages around customer relationships to understand what products needed to be built. Honeywell improved its HVAC software and so far has successfully defended itself. Honeywell could have engaged in superficial efforts completely separate from core work. Instead, Honeywell invented a new way to sell products and did a good job replicating Nest into its HVAC product line.

A business model is perceived as a static design almost like an economic model. A countering perspective is to describe a business model like a model organism. Biologists study a small set of organisms (i.e. C. elegans, Drosophila melanogaster, yeast, zebrafish) to generalize them to other organisms. The elements that helped Facebook or Southwest succeed can be used to create new models. In biology, model organisms help address a lack of knowledge. Just as there is more to be discovered in biology than known the same is probably true in business. As a result, the taxonomy of business models has yet to be fully characterized.

The McDonalds’ business model is the canonical example of franchising. In the genre, a business creates a format to deliver a product and sells this knowledge and support for a recurring fee. This model moved beyond restaurants and became generalized to convenience stores, gyms, and hotels. McDonalds still remains the benchmark when studying franchising.

A great invention doesn’t necessarily create a great business. Taking franchising to a new industry doesn’t guarantee success. Historically, some of the most successful business had advantages around design, marketing, and production. The parts built around an invention are the important features of a business. Edison didn’t really invent the lightbulb but he designed a business around electricity generation to make the lightbulb usable. Often, great inventors synthesize existing ideas to build the infrastructure to bring their ideas to society. Ultimately, inventions succeed when they complete useful tasks that people recognize as important.

Socially, being an inventor can reveal tensions within our community. Inventions like CRISPR, the birth control pill, and even non-censored information are similar to bringing fire down from the heavens. Their inventors are like modern Prometheus’ that can bring massive positive gains or destruction. The design chosen for these inventions are incredibly important. Inventors and their inventions are the protectors of society but could easily become destroyers if the incentives are not implemented correctly.

Trial and error

History’s great inventors often lacked formal training and created their inventions through trial and error. The inventor of microbiology, Antonie van Leeuwenhoek, was self-taught and over decades perfected his microscope to see what no others could see at the time. In London, the Royal Society caught wind of his work where he was accepted into but actually never attended the ceremony. Engines were incredibly inefficient machines. Carnot in the 19th century developed the theoretical basis of the engine discovering how inefficient they were. However, a century before, James Watt took ideas from the Newcomen engine to add a separate chamber for steam cooling and a centrifugal governor. Maybe because of this process, the engine’s effect on the environment was never truly considered — initial conditions determine final state.

Evolution

Some inventions just evolve — both gradual and discrete — to finally emerge into a final form. There really is no single inventor. Mark Blyth from Brown describes it best by describing the iPhone as a great invention but one dependent on government-funded research for the processor, chip, and screen.

Breakthrough

Inventions are usually equated to breakthroughs. There are many types of inventions, but a breakthrough advances human knowledge providing an opportunity for commercialization. The discovery of the structure of DNA enabled sequencing and cloning to emerge. Great companies like Illumina, IDT, Biogen, and Genentech emerged from this work. The pH meter was a breakthrough in measurement and was the centerpiece for Beckman Instruments. Arnold Beckman is a benchmark to be studied where he actually helped fund Fairchild Semiconductor setting the conditions for Silicon Valley to emerge. Beckman used the pH meter to create a franchise where the company now is a leader in centralized molecular diagnostics. The radio emerged from breakthroughs around magnetism during the 19th century from Faraday, Maxwell, and Hertz.

Accidental inventions

Great inventions like viagra and the birth control pill have unexpected applications. Roy Plunkett a scientist at DuPont accidently created a white goo and after some tests realized the incredible non-stick properties it had ultimately leading to Teflon. In 1957, the FDA approved the pill first for only menstrual disorders and infertility. Each box of pills actually came with a warning of contraceptive activity as a side effect. Women at the time usually implemented the Vatican roulette by counting backwards 14 days from the first day of menstruation to determine their ovulation period. Women began using the pill for contraception and the next year an oral contraceptive was approved.

Inventors have created tremendous amounts of change for ourselves, the internal, and the external, the environment, and matter. Their history suggests that inventions are hard to predict and figuring out who the creators will be is even more difficult. Great inventors are similar to artists. Where each inventor has a musician persona. Ginkgo Bioworks mapping to the Beatles. John D. Rockefeller mapping to Jay-Z. Amazon mapping to Eric Clapton. Their eclectic personalities create the initial conditions for their work to impact society.

Flight

Wright Brothers making their first flight. Source: Library of Congress

Flight was a development from directed trial and error. It was only until the late 19th century that enough experiments had been conducted with hot-air balloons, gliders, and kites that heavier-than-air flight was even a remote possibility. The progression led to Orville and Wilbur Wright, two brothers from Ohio and Indiana respectively to collect this information and implement the first airplane. Using research Wilbur was able to receive from the Smithsonian Institute, the brothers conducted and replicated their own research. On December 17, 1903, at 10:35 a.m., after eight years of work, Orville Wright took flight for a historic twelve seconds. He covered 37 meters of ground and 152 meters of air space. This first flight got little attention where only a few field experts initially appreciated the work. After two years of improving designs, in 1905, the Wright Flyer III was inadvertently seen by the public. News spread slowly over the years with heavy skepticism in Europe where the brothers were called bluffers. The brothers focused on obtaining a patent before building a business. This likely was their critical mistake. Customers were unwilling to pay for a plane without a demonstration. The Wright brothers were unwilling to give a demonstration without a signed contract and a patent. The new Wright Company spent most of its efforts in patent litigation rather than commercialization. Individuals like Glenn Curtiss focused on selling products where his company actually still exists with a ~$4B market capitalization.

Assembly line

Ford Motor Company’s Model T assembly line. Source: Library of Congress

The assembly line emerged from evolution of various ideas in production culminating into Henry Ford’s work to make motorized cars accessible to the masses in the early 20th century. Being an amalgamation of ideas, the assembly line was no breakthrough, but was operated on by various selective forces in a wide set of industries. The modern versions are using a software business model in other industries for good and bad. Or bringing the agency model from CAA to venture capital (i.e. a16z). Using integrated models from oil discovery/production to other commodities. The evolutionary nature of these inventions emerges from learnings aggregated over time. The software model in drug development actually learns how to improve its own model by understanding how complex biology is. Henry Ford’s borrowed ideas from the meat-packing houses of Chicago of the late 1860s and an automated grain mill being run by Oliver Evans to create a production process with continuous flow. Just like a slaughterhouse, a car was moved across a line where each worker conducted a specific task toward completion. This division of labor reduced a complex job into a series of simple tasks. The evolution from custom production to mass production.

In 1913, the first moving assembly line was implemented to make Model Ts. This invention gave the Ford Motor Company an incredible advantage that was soon replicated by others. Unlike the Wright Brothers, Ford used his invention to make products but began building various moats around them such as a brand of reliability and a company culture providing double the minimum wage. These structural advantages has allowed Ford to survive multiple downturns. Without the assembly line, Ford likely is a much smaller and less important company. Without the assembly line, the US is likely a less influential country. The assembly line helped the US massively improve productivity. Like most inventions, there were negative side-effects: we now have too much cheap goods floating in our oceans, war now operates at a new scale, labor is considered dispensable.

Penicillin

Sir Alexander Fleming. Source: Getty Images

Antibiotics starting with penicillin is one of the most important breakthroughs of the modern era. During the early 20th century, scientists knew antibacterial substances existed but could specifically isolate the factor. In 1928, Sir Alexander Fleming discovered penicillin. It took another decade for penicillin to be purified and clinically tested. Countless lives were saved by penicillin and subsequent antibiotics discovered. Businesses emerged to commercialize these drugs and help make infectious disease relatively irrelevant in the developed world. Actually, because of this, infectious disease has been relatively ignored and is generally viewed as a harder field to invest in as compared to oncology or neurodegenerative disease. It is probable that a new business model emerges to make antibiotic development profitable. Penicillin was the beginning of massive economic growth where an essential need for humans, survival was met. This invention also led to overpopulation and the medical community overweighting the germ theory of disease rather than general enhancement.

Gunpowder

Proof-of-concept eruptor from the Huolongjing. Source: Wikimedia

In 1044, Chinese alchemists accidently invented gunpowder by mixing potassium nitrate, charcoal, and sulfur. Rather than discovering an elixir for immortality, they invented a potion of death. Slowly, gunpowder moved to Europe forever changing the structure of society. With a gun, the lowliest person had similar power as a general. War became industrialized accelerating colonization of the world by the West.

Velcro

Georges de Mestral — inventor of Velcro. Source: Pinterest

Between 1948 and 1957, Swiss inventor Georges de Mestral noticed how frequently cockleburs would stick to his clothing. Using a microscope, he discovered that cockleburs had thousands of ends tipped with tiny hooks. This observation led Mestral to invent velcro, a contraction of the French phrase velvet crochet translating to velvet hook, ultimately patenting it in 1955 — one strip with millions of tiny hooks and another strip with millions of loops. This property made velcro a fast-acting fastener. Mestral opened several shops across Europe and the US. He did not have as much success as the companies coming after him — public perception of quality was low and only until the use of velcro for the space missions, do the product begin to gain traction. By then, Mestral’s patent had expired and other businesses began commercializing the technology.

Transistor

One of the first transistors in development. Source: CED

The transistor is the key driver of success for the personal computer and the Internet. The device is made up of a semiconductor with multiple electrical contacts semiconductor and multiple electrical contacts. The transistor is used as an amplifier, detector, and a switch forming the basis for modern electronics.

Western Electric became interested in electronic amplification especially as a way to strengthen telephone signals. As a result, one of Western Electric’s subsidiaries, Bell Laboratories, began research on transistors. Led by three individuals, John Bardeen, Walter Brattain, and William Shockley, experiments were conducted to produce a device that produces a signal with a great power than its input. Ultimately, the team publicized the first point-contact transistor in 1947 and subsequently were awarded a Nobel Prize in Physics in 1956.

William Shockley formed a company in Mountain View, CA to be close to his mother. Shockley found support from his old mentor, Arnold Beckman, where Shockley Semiconductor Laboratory was a subsidiary of Beckman Instruments. Eight individuals left Shockley’s business to form Fairchild Semiconductor spawning businesses such as Intel, Kleiner Perkins, and Sequoia Capital. In Japan, two inventors from Sony, Ibuka and Morita licensed the transistor to introduce the first Sony transistor radio (TR-55) in 1955. From the transistor, businesses like Intel and Sony built incredible products that transformed society and create enduring companies.

Steel

Bessemer converter — one of the first devices for the mass production of steel. Source: Wikimedia

The modern world is built on steel. In 1857, Henry Bessemer invented the first large-scale method to produce steel — the Bessemer converter. Up until that time, steel had a few specialty uses but by the 1880s Bessemer work led to mass production of steel to help build skyscrapers and container ships. Bessemer’s invention infused ordinary air, then later pure oxygen after 1929 when the Linde-Frankl process was invented to separate oxygen in air from other elements inexpensively, into molten metal burning off excess carbon and creating steel. By releasing previous constraints, Bessemer allowed new structures to be built and existing ones to become safer. With a patent, Bessemer began commercializing the invention. After visiting Bessemer, Andrew Carnegie invested in a new mill, Edgar Thomson Steel Works, in 1875. With this invention, Carnegie Steel brought steel prices down more than 10x and drove production growth about 100x.

Tuberculosis vaccine

Doctor working on UNICEF’s tuberculosis campaign in Ceylon (now Sri Lanka) in 1950. Source: The Historical Medical Library of The College of Physicians of Philadelphia

In 1921, two French microbiologists, Albert Calmette and Camille Guérin, invented the first vaccine to prevent tuberculosis using an avirulent strain of bovine tuberculosis bacilli. Tuberculosis was discovered to be caused by Mycobacterium tuberculosis by Robert Koch in 1882. Previously known as consumption, active tuberculosis (most infected people have latent tuberculosis) inflames and damages a person’s lungs and spreading to other tissues leading to a slow death. Koch discovered a factor he called tuberculin that was released by the bacterial strain eliciting a reaction in people exposed to or suffering from tuberculosis. With this work, around 1906, researchers discovered that people exposed to tuberculosis were acquiring resistance. Along with work on declining virulence of the strain and the role of the immune system in resistance, Calmette and Guérin cultured avirulent bacteria from cattle and stimulated immunity and antibody production without causing tuberculosis in cows. By 1921, the two inventors developing an avirulent strain that was harmless in humans but provided protection they called Bacillus Calmette-Guérin (BCG). In 1922, newborns from the Charité Hospital in Paris began receiving the BCG vaccine gaining widespread use across the world by the 1930s. However, use in the US and England only started in the 1950s due to concerns of the vaccine being composed of live bacteria unlike other vaccines. The inventors’ work was incredibly valuable in reduce the spread of tuberculosis and like most vaccines and public health inventions, the tuberculosis vaccine drove high levels of economic growth over the last century.

Plastic

Blue plaque for Alexander Parkes — the first inventor of a man-made plastic. Source: Wikimedia

Like radio, the invention of plastic was being worked on concurrently transforming almost every industry and society. The first human-made plastic led the way for the modern materials revolution of the 20th century. In the 1860’s, the billiard company Phelan and Collender offered a prize of $10K to anyone who could produce a substance that would be an inexpensive substitute for ivory. Building on top of previous research, John Wesley Hyatt discovered that adding camphor to nitrocellulose created white materials he named celluloid that could mimic ivory. Hyatt won the prize and began to commercialize his invention. Hyatt realized that celluloid was too easily deformable to be useful to make billiard balls. He ultimately sold his company to GM. In England, another inventor, Alexander Parkes was working at a company called Elkington & Company where he actually was the first to invent the first human-made plastic. In 1856, Parkes patented his work calling it Parkesine. His colleague, Daniel Spill, later improved the material in the form of Xylonite.

The invention of plastic led to more and more work in synthetic polymers and materials science in general. Companies such as DuPont were formed based on these inventions creating new materials beyond plastics such as ceramics and composites. These new materials allowed new products previously unattainable to be developed such as aircraft and high-performance implants.

Engineered insulin

Founders of Genentech — Herb Boyer and Bob Swanson — the company who first cloned insulin. Source: Kleiner Perkins

The first engineered and artificially manufactured human insulin sold was Humulin. The product was used as a treatment for people with diabetes. Until the 1920s, the standard of care for diabetes was a diet with low carbohydrates until the work of Frederick Banting and Charles Best around purifying insulin from animal pancreases (winning the 1923 Nobel Prize in Physiology or Medicine) gave diabetics another treatment option. Diabetics began receiving regular doses of insulin where large facilities were built to isolate insulin from cattle and pig pancreases; however, this form of insulin induced an allergic reaction in 5% of diabetics and supply was constrained by the number of animals raised.

With the invention of molecular cloning, Robert Swanson and Herbert Boyer founded Genentech in 1976. In 1978, the company in particular David Goeddel cloned the first synthetic human insulin in bacteria. Partnering with Eli Lilly, the FDA approved the first human insulin product called Humulin on May 14, 1982.

The invention used two strains of the bacterium, Escherichia coli, to produce A and B chains separately. After purifying each chain, they are combined to produce insulin. During the research, synthetic human insulin was show to be biologically equivalent and most importantly not produce adverse reactions and no longer being constrained by the number of animals to slaughter. This work not only helped diabetics around the world but showed the power of molecular biology to produce high value drugs creating the $200B biotechnology industry.

Internal combustion engine

The four cycles of a standard internal combustion engine. Source: Getty

The most common engine in automobiles today is the internal combustion engine (ICE). For centuries the engine was under development and the ICE emerged from an evolution of designs. Beyond the invention, fuel was consumed externally limiting the potential settings an engine could be used in. ICEs burned fuel internally enabling the invention of cars and airplanes. The first engines were extremely heavy — 10 to 15 lbs per output horsepower, as opposed to 1 to 2 lbs today, slow — 1K or fewer revolutions per minute or less versus around 5K today, and inefficient. WWI drove improvements in these engines to be useful for military aircraft and tanks.

The inventor at the center of the development of internal combustion engines was Harry Ricardo. Spending a lifetime developing engines first with a coal-fired steam engine for his bicycle as a child to motorcycles during his studies at Cambridge University to his two-cycle engine called the Dolphin used in automobiles and boats. In 1916 during the war, the British government requested a tank engine that would not billow smoke exhaust from the business Ricardo’s was working for. The company came up with a design that used air circulation around the carburetor and within the engine to cool the fuel. A year later, Ricardo founded his own engine company and came up with a series of breakthroughs such as the the toluene number to measure fuel detonation eventually replaced by the octane number and new piston designs to make engines more efficient. The internal combustion engine create new products and enduring businesses such as Mercedes-Benz and Aston Martin.

The right structure needs to be designed to bring an invention to create an important business. Neil Postman is a relatively ignored writer whose ideas are incredibly well thought out and salient for this era. Neil argues that change is ecological. The printing press created whole new social structures (i.e. Protestants from Catholics). More and more inventors themselves are defining the nature of society and politics. These inventions become myths themselves — the best example Postman actually points out is that of the fascination with the life and work of Leonardo da Vinci.

Inventions have personal truths. For example, a biotechnology company could have an embedded scientific secret — a unique mechanism-of-action that is hard to understand but improves the probability a drug will work. These truths are often abstract and hard to appreciate initially. However, when these inventions manifest themselves into usable products, as Postman recognizes, they reset society’s values. A world with accessible drug manufacturing values new designs. The Internet resets how software is sold. No writing values memory. No Internet values meaning. The proper framing of an invention is required to design a unique model.

Inventors historically have created high levels of wealth. There still needs to be work around minimizing potential downsides, but technology must not be outlawed because of these side effects. History would suggest technology is the solution. Inventors are a small group of individuals who can solve important problems and build unique businesses. Over half of the top 10 wealthiest individuals in the world are inventors with one inheriting the money and the rest designing unique business models nevertheless. A little under half of the top 20 Fortune 500 companies were formed around an invention. Inventions drive growth and create new opportunities and can form very large and important businesses.