How I evaluate (any kind of) innovation

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The Mississippi river delta – Courtesy of NASA

I mentioned both the term upstream and downstream in some of my previous blogs and quite a few of my readers asked me to explain the intended meaning, importance and their differences within the context of innovation in more detail.

I am more than happy to do so since both terms apply to the way I look not just at technology innovation, but also the way I look at economic innovation, social economic behavior, and the evolution of evolution.

Use with caution
Now, the danger of simplifying thought processes into easy to understand corollaries is that the corollaries run out of depth before the refinement and iteration of the thought processes do. And thus I warn you to use the following simplified explanation with that limitation in mind.

But if I do my job well in describing my principles below (it is easier to talk about it than to write about it), entrepreneurs should be able to think about and drive more meaningful innovation, investors should quickly be able to distinguish the value of innovation proposed by entrepreneurs, the people and its governments should be able to quickly assess the value and impact of proposed economic change, and anyone should be able to quickly assess the impact of any kind of evolution together with its purveyors.

So, without further ado.

The rivers of evolution
The most basic principles of evolution come from nature (sorry, not from computation that can only dream to be an accurate derivative of reality), shaped to perfection on this earth during the course of some 4.54 billion years. The best example I have found and use everyday is depicted by the way river-water runs down and shapes the rivers leading into the ocean, as part of the hydrologic cycle.

The hydrologic cycle is the process by which water in the ocean evaporates into clouds and as rainfall dumps on the mountains, to create rivers with many branches that lead back to the ocean.

Many other examples in nature exist that behave similarly. Like the function of renal veins in our kidneys, the capillaries in our lungs, the roots of a tree, the photosynthesis by leaves on a tree, the formation of the human genome from splitting exons and introns, etc.

Take your pick based on the your area of expertise, while I stick with the relatively simplicity we can all comprehend.

The current of time
Evolution behaves like the formation of rivers in which the river-current is the equivalent of the unstoppable passing of time. Time passes as we get older (never the opposite), in the same way the current will always flow from the highest to the lowest point. The flow in a branch of river can stop, which only means water is flowing through another branch or river instead. Just like time, the flow of the hydrologic cycle (thankfully) never stops.

The constant of change
With the branch structure of most rivers originating in the mountains, the direction of each river is for the most part determined at the top (swayed by many parameters, such as soil, resistance etc.) and with twists and turns will make its way down and directly affect the flora and fauna down below. But the ways of the river changes very little. Just like socioeconomic value, defined as the basic needs of human beings, stays pretty much constant.

The conduit of distribution
Water that flows through the river acts as the conduit of nutrition. Not only does it contain and transport oxygen and hydrogen, it also serves as a vehicle for vital minerals (side note: did you know we consume some 2 billion metric tons per year?) we consume and need for building things. Those minerals reinvigorate life.

Nice story, you say, but where does innovation come in?

Types of innovation
Well, simply put, (any kind of) innovation is the product of the minds of people who enter the river, defined by where they enter the river and what they do next.

Downstream people
Many people, driven by the guidance of their formal education, pick a river with a current that matches their comfort, walk up alongside the river up the mountain, enter the river with a canoe and paddle downstream, their behavior governed by the curvature of the river, and their speed more or less dictated by the speed of the current. Meaning, they take life as prescribed to them as a given (fait accompli) and with their existing knowledge and tools in hand optimize their trajectory, and take their lifetime to paddle downstream to where, someday, they meet their peers resting comfortably in the ocean below.

Upstream people
Fewer people, despite rather than because being born as the proverbially sons and daughters of the down-streamers in the ocean, pair their dissatisfaction of how the world works combined with their refusal to submit, acting as the boundless motivation to swim their way up the river (like a salmon, continually challenged by the increasing resistance of downstream). And finally, after a long swim, nurtured by minerals into well-developed skills as the preparation that meets their opportunity, they end up beyond the point at which the first downstream paddlers entered, admiring the world from a higher vantage point.

Higher altitude equals higher magnitude
Using the above described corollary, the higher the altitude of the people in the river with a responsibility for innovation, the more impactful their proposed change will be.

Not only because the attachment to higher amounts of socioeconomic value (with fewer wild aberrations) by itself will yield significant new green-fields and greater adoption downstream, but the ability to redirect the river, change its current, or build dams upstream will inevitably affect all the economic flora and fauna below.

The vast majority of downstream people who walked up the side of the river, ready to deploy their canoe, can at best reach the highest point their teacher – they looked up to – has ever gotten to. Minus those who understand the relativity of formal (higher) education and somewhere dissented into swimming upstream. Upstream people, guided primarily by the judgement of their growing dissatisfaction and experience, yield new discoveries at new heights that have no precedent (or perish along the hard way up).

Or in Albert Einstein’s words “Imagination is more important than knowledge“.

That was not too hard, was it? Now, take a breather and think, before I deepen this corollary out a little further to represent more of the complexities of the real world. Then continue. 

The laws of nature
While I have a clear favorite of the aforementioned types of people, our world cannot flourish when driven by just one type. Both downstream and upstream innovations and their people are needed to make this world a better place.

In fact, the laws of nature dictate that the need for upstream innovation only becomes apparent (often as a last resort) when the evolution of downstream innovations has run its course, into becoming commoditized. But upstream innovation requires a compass, a belief in, and a rethink from a different vantage point (higher up the river), an attribute coming from people who are an overwhelming minority.

Help to prevent further commoditization is therefore in very short supply, and many wishing to change it succumb to the pressure and resistance from many well socialized and well established downstream waterfalls.

Death is innovation
The minute groundbreaking upstream innovation is deployed, a plethora of downstream innovations (genuine and fake) from that new starting point will soon take its place.

Upstream innovation lives only once, to be followed by an endless supply of downstream sub-optimizations (like branches of a river) that provides more complete coverage of the economic flora and fauna below. When downstream optimizations slowly die in the arms of commoditization and saturation, will it finally be surpassed by newborn upstream innovation that is deemed more worthy, or the only option of last resort.

Upstream and downstream innovation are each other’s perfect parasites, and combined they ensure a renewable evolution.

Resistance is futile
The reason why we do not accept upstream innovation easily is because the investment to invent it is costly, as swimming upstream is very hard. Combined with a real risk of failure (of acceptance) and often damaging personal consequences to the lone wolves that ignite upstream innovation.

That risk and cost appears more than the perceived cost and risk attached to downstream innovation. As the damage of failure from downstream can be mitigated and gently dampened by the same socialism that ignited it.

Yet the balance-sheet of cost and opportunity caused by the prolonging of life of a plethora of downstream innovations that have run its course, at a certain point becomes much less healthy than the balance-sheet of upstream innovation and the new groundbreaking opportunities only it can unearth.

Cannibalization, and yes death, is the necessary and inevitable outcome of the cycle that reinvigorates upstream innovation from downstream. In its path suddenly rules will be reset, ill-gotten or out-dated power positions removed, and a new meritocracy deployed.

Resistance is futile, since the protection against cannibalization is a direct offense to the unstoppable evolution of innovation.

Conversely, we ought to put more stock into those who believe in and support cannibalization, as they prove to be the ones who value the evolution of evolution more than the evolution of themselves.

Relativity theory
Before I delve into examples of upstream and downstream innovation it is important to realize that the evaluation of innovation remains a relativity theory. Meaning, the classification of innovation is relative to the current state and the purview and foresight of those interpreting it.

Notice in my description of the corollary that the position of entry in the river is not absolute, the river chosen is not absolute, and the distance towards the ocean or mountain top is not. That is because in the perpetuity of the hydrologic cycle none of that matters. For seemingly approaching the top of the mountain simply means other mountains (some yet to be born) and their converging branches are in need of perpetual scaling.

Abuse and deceit
As with any system, abuse and deceit are integral aspects of innovation too.

Downstream innovation can be detected by downstream and upstream people, since they both have been in the same place of the river, albeit moving in opposite direction. Upstream innovation only warms the heart of upstream people with a more critical view and a burning desire to envision and invent our world anew.

But again, both types of innovation are a critical part of the evolution of evolution. And one cannot exist without the other. Without downstream innovation there would be no need for upstream.

But severe damage occurs when false positivity as the symptom of downstream people wanting to be perceived as upstream (there is no payoff for the reverse to occur), carries downstream on for too long. It is the method of choice to those who under the cover of relativity, convince those resting down below far enough away from the impending imperfections of downstream, to sell their snake oil as upstream. Their ploy often works, as to those below, downstream innovation appears as upstream.

False positivity is extremely dangerous as it prolongs the life of downstream innovation, increasing the societal cost and burden to those who buy in, and preventing the evolution of innovation from igniting upstream. False positivity is the antagonist of evolution.

Hope that helped. Time to lighten the mood. Ready for some examples of upstream and downstream innovation?

Examples
Innovation relates to many more aspects than just technology. Economic systems, financial systems, behavioral systems or anything else that attempts to capture evolution will need to be mapped to the evolution of evolution as described above.

The challenge is not in the merit of the theory (since the theory itself is a derivative to nature) but in the execution of the theory, that yields more effective results in driving a renewable economy of prosperity and happiness for a growing number of participants.

So, here are a few top-of-mind examples of upstream and downstream innovation and states:

  • The original iPhone (iPhone 1) was upstream innovation created by Steve Jobs was a fundamental departure from what previous “smart” phones used to do. Not in its ability to place “smarter” phone calls to contacts in its address book (downstream), but to serve the needs of a greenfield of consumers (upstream) who wanted a multipurpose media device (camera, music, video, photos, internet, email) that happens to also make calls. The subsequent versions of the iPhone (now at iPhone 5) are downstream innovations from that unique original conception. And Apple has yet to prove that without Jobs it can actually continue to deliver upstream innovation.
  • In 1787 the U.S. constitution, as the work of many minds, was a great upstream invention in its day. Followed by many downstream innovation in the many years to follow, it has not only demonstrated to run out of optimization, but by lack of adaptation to new global economic challenges combined with a lack of specificity to reach its lofty ideals, is in dire need of upstream innovation to realign with the undeniable laws of nature.
  • Our financial system (that rules the world) that find its origin from the French, then popularized by the Dutch in the 1600s, then adopted by the U.S. as the foundation for our financial exchanges as upstream innovation, has under decennia of laissez-faire evolution (downstream) abused the guiding free-market principles of its inventors. Those financial systems are now ballooning our economy out of control with a stunning size of eleven times the size (and power) of production. Our financial system are in desperate need of upstream innovation, as opposed to an endless tweaking of downstream economic dials. To ensure that as a derivative of production our financial systems trace rather than distort our capacity to produce.

Economics in need of upstream
I can name thousands of other examples, for the simple reason that economics (upon which many of our other systems hinge) is in a severely downstream state itself.

We have now reached the point at which we have run out of downstream economic innovation, and the challenge is not to prolong its life further (by changing the dials), but let it be surpassed by upstream.

With the right kind of upstream economic innovation applied correctly (I will describe further in my book), our economy and everything below can prosper again. Just like redirected river water from the top will breathe new life in the many seeds that lie yearning below.

And that, my dear fellows, is the authentic and boundless positivity only upstream innovators can provide.

 

We encourage comments that are relevant to our observations, conclusions and the specific topics discussed in this blog, either in agreement or disagreement. Leaving your insightful comments here will ensure others can learn from them too.  Keep in mind however this is not a place to spew your own theories (go write your own blog), but the best place to question or approve our observations.

About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.