Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries

When groups are small, for example, everyone’s stake in the outcome of the group project is high. At a small biotech, if the drug works, everyone will be a hero and a millionaire. If it fails, everyone will be looking for a job. The perks of rank—job titles or the increase in salary from being promoted—are small compared to those high stakes. As teams and companies grow larger, the stakes in outcome decrease while the perks of rank increase. When the two cross, the system snaps. Incentives begin encouraging behavior no one wants. Those same groups—with the same people—begin rejecting loonshots.

Bush wrote, he learned “how not to fight a war.” In the high-stakes competition between weapons and counterweapons, the weak link was not the supply of new ideas. It was the transfer of those ideas to the field. Transfer requires trust and respect on both sides.

Let’s call it the Moses Trap: When ideas advance only at the pleasure of a holy leader—rather than the balanced exchange of ideas and feedback between soldiers in the field and creatives at the bench selecting loonshots on merit—that is exactly when teams and companies get trapped. The leader raises his staff and parts the seas to make way for the chosen loonshot. The dangerous virtuous cycle spins faster and faster: loonshot feeds franchise feeds bigger, faster, more. The all-powerful leader begins acting for love of loonshots rather than strength of strategy. And then the wheel turns one too many times.

While the individual man is an insoluble puzzle, in the aggregate he becomes a mathematical certainty.

Keeping the forces in balance is so difficult because loonshots and franchises follow such different paths. Surviving those journeys requires passionate, intensely committed people—with very different skills and values. Artists and soldiers.

Bush and Vail understood that the doomsday cycle is not inevitable, and that the best chance for sustainable, renewable creativity and growth comes from bringing an organization to the top-right quadrant: separate phases connected by a balanced, dynamic equilibrium.

The collapse, for example, of IBM’s legendary 80-year-old hardware business in the 1990s sounds like a classic P-type story. New technology (personal computers) displaces old (mainframes) and wipes out incumbent (IBM). But it wasn’t. IBM, unlike all its mainframe competitors, mastered the new technology. Within three years of launching its first PC, in 1981, IBM achieved $5 billion in sales and the #1 position, with everyone else either far behind or out of the business entirely (Apple, Tandy, Commodore, DEC, Honeywell, Sperry, etc.). For decades, IBM dominated computers like Pan Am dominated international travel. Its $13 billion in sales in 1981 was more than its next seven competitors combined (the computer industry was referred to as “IBM and the Seven Dwarfs”). IBM jumped on the new PC like Trippe jumped on the new jet engines. IBM owned the computer world, so it outsourced two of the PC components, software and microprocessors, to two tiny companies: Microsoft and Intel. Microsoft had all of 32 employees. Intel desperately needed a cash infusion to survive. IBM soon discovered, however, that individual buyers care more about exchanging files with friends than the brand of their box. And to exchange files easily, what matters is the software and the microprocessor inside that box, not the logo of the company that assembled the box. IBM missed an S-type shift—a change in what customers care about. PC clones using Intel chips and Microsoft software drained IBM’s market share. In 1993, IBM lost $8.1 billion, its largest-ever loss. That year it let go over 100,000 employees, the largest layoff in corporate history. Ten years later, IBM sold what was left of its PC business to Lenovo. Today, the combined market value of Microsoft and Intel, the two tiny vendors IBM hired, is close to $1.5 trillion, more than ten times the value of IBM. IBM correctly anticipated a P-type loonshot and won the battle. But it missed a critical S-type loonshot, a software standard, and lost the war.

I’ve always appreciated authors who explain their points simply, right up front. So here’s the argument in brief: 1. The most important breakthroughs come from loonshots, widely dismissed ideas whose champions are often written off as crazy. 2. Large groups of people are needed to translate those breakthroughs into technologies that win wars, products that save lives, or strategies that change industries. 3. Applying the science of phase transitions to the behavior of teams, companies, or any group with a mission provides practical rules for nurturing loonshots faster and better.

The person in charge scans for bad fits and steps in to rescue a bad situation, as he did in my case. He pulled me off that project and away from that manager and placed me where my skills were better suited. My back straightened, and I did fine the rest of my time at the company. My toothpaste project was an example of an undermatch: skills or experience

By 1938, Hitler had annexed Austria and the Sudetenland; Franco and his Nationalists had captured most of Spain; Mussolini was in full control of Italy; and Japan had invaded China and captured Beijing. Bush and a handful of other scientific leaders—including James Conant, a chemist and the president of Harvard University—believed war was coming and the US was dangerously unprepared. Both had witnessed the tendency of generals to fight a war with the weapons and tactics of the preceding war. They understood that the same mistake this time—facing a much greater German threat—could be fatal.

In the real world, ideas are ridiculed, experiments fail, budgets are cut, and good people are fired for stupid reasons.

Entrepreneurs, for example, often say that big companies fail because big-corporate types are conservative and risk-averse. The most exciting ideas come from small companies, because—we tell ourselves—we are the truly passionate risk-takers.

Later, Folkman would say, “You can tell a leader by counting the number of arrows in his ass.

It was Branch Rickey who originated the saying cited in part one: “Luck is the residue of design.

Loonshot: A neglected project, widely dismissed, its champion written off as unhinged.

to understand what causes a phase transition inside organizations, we need a simple-model organization, one that captures just enough to illustrate the basic idea.

Hemingway wrote that “the dignity of movement of an iceberg is due to only one-eighth of it being above water.” He called it his Theory of Omission. The power of beautiful prose comes from what you leave out. In science, it’s the same. The power of a beautiful model comes from what you choose to omit.

As the small startup’s size gradually increases, it will eventually reach a breakeven point where the two incentives, pulling in opposing directions, are equal. Above that size, a behavior appears across the organization that favors killing loonshots and supporting franchises. Let’s call that behavior the Invisible Axe. The sudden emergence of that Invisible Axe is a phase transition.

Dismissing the loonshot in favor of the franchise project is the rational choice.

Bill Gore and Brigham Young limited groups to 150 people. We intuitively understand that something changes inside teams and companies as they cross a certain threshold in size. But the volume of our neocortex might have nothing to do with it.

Just because a theory might be a bit wacky, however, doesn’t mean there isn’t something to the observation.

time to build a new plant.” The idea of a hard-wired cutoff at 150 human relationships, set by volume of the human brain, went viral.

Then, in 2000, Malcolm Gladwell published The Tipping Point, a blockbuster that included a chapter titled “The Magic Number 150.

Dunbar proposed a novel idea: the size of a species’ brain determines the optimal size of their social groups. Maintaining relationships, argued Dunbar, requires brain power. More relationships require more neurons. Extrapolating his straight line from primate brains to human brains, he found that the optimal human group size, if this hypothesis were true, would be an interesting number: 150.

The average size of those companies:

The governor of Illinois feared that armed Mormon retaliation could escalate into a civil war. He urged Smith’s successor, Brigham Young, and his followers to leave the state. Soon the urging became more insistent: leave or be forcibly expelled. Young agreed to go. Young now faced a serious organizational challenge. How do you plan an exodus? How should you move thousands of families and their horses, mules, oxen, cows, sheep, pigs, chickens, dogs, cats, geese, and goats, all while searching for a permanent home? Young stewed on the problem, debated with his advisors, and finally, on January 14, 1847, announced that the Lord had spoken to him. The Church should divide into small companies, each led by a single captain, and head west.

As a group grows, the balance of incentives shifts from encouraging individuals to focus on collective goals to encouraging a focus on careers and promotion. When the size of the group exceeds a critical threshold, career interests triumph. That’s when teams will begin to dismiss loonshots and only franchise projects—the next movie sequel, the next statin, the next turn of the franchise wheel—will survive. Even more important, we will see how to control that transition: how to change the magic number.

Systems snap—liquids suddenly freeze, traffic suddenly jams, forests or terror networks suddenly erupt—when the tide turns in a microscopic battle. Two forces compete, and the victory flag changes sides.