Fostering Innovation in Today's Workforce with Frans Johansson, Bestselling Author, Entrepreneur, and Acclaimed International Speaker
Willy Walker: Welcome to another Walker Webcast. It is my great pleasure to have my friend Frans Johansson joining me today to talk about diversity of ideas, diversity of talent, and innovation. And how the diversity of talent and diversity of ideas leads to innovation and growth, new concepts, new businesses, and value creation, if you will, across the economy and across companies. It is the 6th of November. We had an election last night. Congratulations to those people whose candidate won, and condolences to those people whose candidate lost. But one of the things I want to dive into with Frans in a moment is how we should think about change as it relates to political leadership. And where our country is going for both the victors to think about what they're hoping to do from an innovative standpoint and from a change standpoint. How do those who are on the losing side of the spectrum look at it as an opportunity and look at things differently over the next four years than they've looked at them over the past four years? But before we dive into that, let me give a background on Frans and then kick it off with going back into his childhood actually, which I think there are some experiences back there that might actually have framed why you have become such an insightful, both researcher, author and speaker on innovation that you have become Frans.
Frans Johansson is an American writer, entrepreneur, and public speaker. He's also the founder of two companies. He is the author of the 2004 bestselling book The Medici Effect and The Click Moment in 2012. That book discusses the role of luck and serendipity in personal lives and in business. He currently serves as the CEO of the Medici Group, which I guess would be the third company you've started, a consulting firm that promotes innovation through diversity. He is the founder of both Doula Health System and Ingka.net. Johansson graduated from Brown University and Harvard Business School, and he spoke at the 2024 Walker & Dunlop all-company meeting. And it is a real pleasure to have Frans with me today.
Frans, you grew up in Sweden, and you did a lot of fishing. You also played a lot of Dungeons & Dragons. As I thought about your career and what you were focused on, I thought about Dungeons and Dragons in the way that that game is played. And I said, “That's maybe why Frans has such a creative mind is that his favorite game growing up was actually a game that didn't really have specific rules to it but gave you a framework upon which to create your own world, your own adventures.” Talk for a moment about whether Dungeons & Dragons, to some degree, is at the cornerstone of everything that you've done subsequently.
Frans Johansson: All right. Good job elevating this to my probably top three interviews ever. Let's open with Dungeons & Dragons. Yes. I played Dungeons & Dragons, so to be specific, is the Swedish version of it. And I still do. And I consider it to be one of the most creative developmental exercises that one can actually do. I didn't view it that way when I was a kid. It was just having fun getting into it and creating worlds, scenarios. But the reality is that there are at least two ways in which the skills that I learned in playing Dungeons & Dragons, actually three, played out right now and what I'm doing today in the world. The first one had to do with what you talked about: creating worlds, creating characters, creating histories. You have to set that stage in order to pull players in and get them to commit to that world. The second had to do with what it means to improvise in the moment. You can lay it out. For those of you who don't know what the Dungeons & Dragons are, how it works. There's a game of master designs in adventure, and you have people entering it, but they are free to make their own choices, and sometimes they are going to choose things you did not plan for. You have to pivot in that moment over and over again. I want them to go left. They went right. I got to run with that. That's a secondary piece of this agile, adaptable mindset. Truly schooled me in it. The last piece is one I didn't know at the time, but I ended up becoming a speaker. I'm on stage and speaking, talking to your leaders. Dungeons & Dragons is a really performative way of sharing ideas. It's had an enormous impact on me. I think about it every day, really literally; I think about everyday lessons that I learned from it and that I'm applying in the work now.
Willy Walker: That's one of the foundations of your intellectual capacity and capabilities. Talk for a moment about your social interaction or experience growing up as a brown person in Sweden and how that impacted what you wanted to do with your life.
Frans Johansson: Whenever I give a keynote, I make a little quick joke about what it's like to grow up that way in Sweden. Today, Sweden is a much more diverse mixed society. The time I was growing up, it was my mother, me, and my sister, who had any color in the town I grew up in. There were at least two or three different things that set themselves and prepared me for what was about to come. The first one was that I recognized within our own family the value of different perspectives, the value of cultures, norms, and traditions and being able to meet and take the best of each other and create new perspectives, norms, and culture. I'll give you an example.
In the United States, we will have pancakes for breakfast. And those pancakes are fairly small and thick. In Sweden, they don't really have pancakes for breakfast, they have them for dessert or possibly dinner. And they like crepes, which are very thin and large. And in our family, what we would have would be Swedish pancakes for breakfast, which doesn't seem like a big deal. But my friends came over. They were just blown away. You're having pancakes for breakfast? What is this? And to me, that was a deep lesson in that. This very seemingly simple combination of ideas would actually seem to be almost revolutionary for people who hadn’t been exposed to it. I never forgot that. And in fact, that's what the entire book I mentioned and wrote about set the stage.
But there are other pieces growing up this way as well because it wasn't always straightforward or easy. It's hard to even imagine now. But being the only person of color in my school, it was an environment where I was deeply bullied because of it. It was something that I carried with me basically every day. And the idea of being able to understand and see the positive in it rather than internalizing that and letting it keep me down. That was a very important process. What I would say is, “I think most people split. Sometimes you go down a path where this becomes something that you can't really let go of for the rest of your life.” And although there is a small chip on my shoulder, I will admit, there's another pathway, too, which is that there's actually a benefit of seeing the world differently. There's a benefit every time something comes up, whether it had to do with a topic in school or a topic among friends. I got a chance to look at it from a slightly different way. And if you harness that idea, that notion, it turns out that it's a benefit, you differentiate. These are the lessons that I carried with me when I went to college in the States. And again, they haven't left me, just like Dungeons & Dragons, still with me today.
Willy Walker: Your mother is African American and also Indian. A question for you as it relates to me. One of the reasons is your perspective.
Frans Johansson: Cherokee native.
Willy Walker: Cherokee native. Yes. One of the things that is so interesting, Frans, as it relates to your perspective on innovative ideas and diverse groups of people, which is exactly what you just talked about. I was watching Monday Night Football and the Kansas City Chiefs game, and at the beginning of it, they had a tribe leader come in and bang the big drum that is inside what used to be called Arrowhead Stadium. Now it's sponsored by some big company. But at the beginning, it seemed to me to be a celebration of that heritage, a celebration of his tribe and the name of the Chiefs. In some instances, the name of sports teams like the Braves and the Redskins has gone away. And in others, like the Chiefs, they've kept it and, to some degree, celebrate that part of the history. Where do you come down, given your heritage? Is it better to get rid of those names, or is it better to actually keep the names, keep focusing on that piece of heritage, and not forget about it?
Frans Johansson: I think that this is something, I don't know if this is a blanket rule. I think intent is really important. How did the team arrive at a particular name, and what did it do with that heritage? These are two questions that I think really matter. And if this is something that can have room to become part of what that team is all about, I think that's a good thing. I will say this though broadly, “I'm a big believer in the recombination of concepts across cultures,” across cultures, disciplines, industries, everything. I'm sure we're going to get into that. But I'm a big believer of it, and I believe that is what has driven progress across the entire planet. We take concepts from one area and bring them into another. And it's not just the fact that we're exporting one concept to another. We are remixing and creating something new through it. That, to me, is what's so exciting about a world that is inclusive. We should allow it. We should have room for these kinds of combinations to occur. Now that said, sometimes it's not about the combination, sometimes about representation, and sometimes it's about misrepresentation. That's why I'm saying, “I don't think that's a blanket rule. I think that you will find that the way people are treated and/or feel treated differs based on the history that led up to that moment and what is happening in it at that time.” And that's also true for individuals. You can take the same person in the same situation. And one person may feel that this is something where they are being disrespected, and another person may not feel that way. Who is right? It's going to really depend upon the person and the situation. I don't know if there's a blanket rule that can be stated across.
Willy Walker: You grew up in Sweden, and as you said previously, your sister and your mom very much stood out, if you will, in that community. You get to Brown University in Providence, Rhode Island. And it's a wildly diverse community. It's students from all over the globe. It's every color of the spectrum, if you will, as it relates to the diversity inside of that Brown class. You started a journal at Brown called The Catalyst. What did The Catalyst do, and what were you intending to create when you created The Catalyst?
Frans Johansson: It is still around, by the way.
Willy Walker: Wow, that's quite something.
Frans Johansson: Yeah. That has become part of the university. Here's what I saw. I went to Brown, and I realized that my interest was very diverse. When I went there, I thought I was going to major in quantum mechanics. I ended up not doing that. Instead, I headed towards environmental sciences, which is something that was closer to me. I'd been really working on figuring out how to manage overfishing and try to reel that back. It's one of the greatest dangers in the world, frankly. Anyway, that's a separate topic, and that’s why I went into environmental science. Environmental science is an incredibly interdisciplinary field. And you're talking about geology and biology and climatology, and you're talking about chemistry and physics and economics. It's all tied together. However, I didn't really see a huge opportunity to interact with the different departments at Brown. The funny thing was that I recognized this as a theme of how I grew up across cultures. There was a similar dynamic between how cultures could interact or not interact and what I was seeing around between different disciplines interacting or not interacting. The purpose of this magazine was to bridge or break down those silos and create bridges across the different departments. When I created it, one of the key goals I had was to make sure that I got funding from every single department, science department, or engineering-oriented department. And I did, except for engineering. The first issue, which I then prominently made a point of when it got published. For issue number two, let's just say they were the first to come on board because it turned out to be a huge success. This was something that the community wanted and needed. And over time, it also grew to become a bridge not just across the sciences but also between the sciences and the humanities. I think it has served its role to help students but also faculty make those connections.
Willy Walker: You get out of Brown, and you end up starting some companies. Then, you write The Medici Effect. Someone you and I both knew before unfortunately died, Clay Christensen called The Medici Effect one of the most insightful books on innovation I've ever read. First of all, when Clay Christensen says that about your book, don't you call it a day? Don't you like to say, “I’m done, it doesn't get any better than this.”
Frans Johansson: Funny story. I wrote the book. Working on this book was hard. I graduated from Harvard Business School, and I chose to write a book like I did not have any money, maxing out credit card after credit card. I was in New York. It was not straightforward. And my girlfriend at the time, my wife. We were really trying to figure out how to make every single dollar stretch. I'm like, “What have I done?” And I need to have a goal in my mind. And I said, “Okay, look, the goal is going to be that a person that I respect in the field of innovation believes that this book has contributed significantly to that field.” That's my goal. And the time comes to see who could write quotes or blurbs for the book. My publisher, HBS Press, said, “What’s your number one source.” And I said, “I know who lets do it basically never gives any type of quotes.” But Clay Christensen, “Why don't we just kind of send it to him, see what he thinks?” I got this email back with the quote and so two things happened. Yes, I was humbled, and I was excited. But I realized I'd set my goal way too low. I just made it up. I'm like, “Two days into this, and I already met my goal.” No, no, no. I need to revise the goal. And basically, that has been the process ever since. This treadmill of keeping on revising goals right after that was the next thing and then the next thing. Now, the goal is to use these ideas to literally change the world sounds large scale. Right now, the company that we have is called The Medici Group; I'm actually CEO of The Medici Next, which is an enterprise software company. And for the first time, there is a pathway to actually impact the whole world. But that has been the journey of this book, just re-setting the goals. But it started the way you said, “That was my goal, I met it with the first email out.” And yeah, was I happy? 100%. I think I got it in my mind.
Willy Walker: I guess the other thing about it is that by getting that type of endorsement from Clay, it also became a bestseller and was translated into 18 other languages. There is something there that allows you to go to the next level as it relates.
Frans Johansson: It was helpful, yes,
Willy Walker: because you got that first. As you talk about it, it's actually a pretty good segway to it. There were a couple of things I want to talk about on this, but one of the models that you talk about as it relates to innovation, Frans, if you look at going from point A to point B, which is we want to create something that is new and innovative, Many people, as they go and move out on that continuum, if they've used all of their resources in getting to that endpoint and that endpoint doesn't actually have value to either the company or commercial value, they've expended all of their resources on getting there. And one of the things that you consistently talk about is making sure that A, you don't think that the idea creation is going to be linear. It's not a straight line out there. It's going to zig and zag as it gets there. And B, as you're heading out towards that point, B, make sure that once you get to point B, you still have resources to expend. Because typically, if you get to point B and you've expended all your resources, it ain't going to be commercially viable. It's a little bit to you to get Clay to give you a recommendation, which then takes it to that next level. Talk for a moment about how can companies, if you will, innovate with that framework in mind. In other words, when you sit down with a company like Walker & Dunlop and say, “We want to build an online marketplace for properties,” and you say, “Okay, great. That seems to make sense. It would work into what Walker & Dunlop does today.” But make sure that as you plan on that continuum, what would you then say to us as it relates to trying to get to that point?
Frans Johansson: If I were to be a reductionist, two things. The first one is that it has to be different enough that there's some aspect of it that is not obvious. If it's obvious, there are already lots of people working on it or have already delivered on it. That's how you create differentiation. Let's say create an opportunity to build a moat, a possibility for somebody else to not come after you because you create a breathing room to create an advantage. That's the first thing. But what is the implication of that? It is that if it's not obvious, you're not exactly sure how it's going to work. That follows very naturally. One leads into the other. But here, when we think about how corporations in particular, but large-scale organizations broadly, how they think about spending? It doesn't necessarily follow that at all because here's what tends to happen. In order to free up resources to do something, you have to be certain about it. Nobody really is going to give somebody money and say, “Listen, I want $10 million for this. And I have no real idea about how I'm going to spend it.” That doesn't engender trust in giving people money. What actually happens is that elaborate plans are created to hit some large-scale goal, something that can move the needle, the marketplace. What are the numbers for year one, year two, and year three? How much money to lean on? What are some options we're making? But they only give you a self-one-shot of getting it right. You put the money in, you set it up, but what are the chances you're going to get it right? As I said, “Since it was some aspect of it is unique has never been done before. Outcome is very low.” You might get an aspect here or there, an assumption here or there. We're not going to get there all right. By necessity, you absolutely need the ability to pivot to dynamically allocate resources towards places where it will take you where you weren't even sure when you started. And I would say that this is one of the greatest predictors of success. Are you baking in the fact that there are going to be failures? Are you baking in the fact that you are going to have unexpected insights? Because if you're not setting yourself up for failure. And when you look at any breakthrough of really any size, you will see that they all have these elements embedded in them.
We right now, we are doing this on a Zoom call. But eventually, it's going to find its way on YouTube. And YouTube started out as a dating site. The idea was for people to upload videos and then vote on whether or not they want to date you, which is a really bad idea. But then two of the founders went to dinner, and they were actually filming that dinner, and they realized they had no one to easily share that movie. But maybe they could do it on their platform; maybe we'd try this instead. Let's go in a different direction. That sequence of events was, of course, what became YouTube. That sequence of events is extremely common, and I don't see it being incorporated into execution plans remotely enough. I like to say that when somebody talks about an online marketplace, like you're talking about here. How many opportunities are you giving yourself to be wrong? That's it. And if I hear like one, I know that you are probably not setting yourself up for success because you're going to be wrong more than that.
Willy Walker: And I've heard you talk about the fact that there are plenty of papers that Einstein wrote that weren't as impactful as the theory of relativity and that there are lots of companies that Google has founded that we never see make any commercial success. They're investing in it. As I think about that, as someone who has absolutely no expectation that my brain is as smart as Einstein or my bank account is as deep as Google, how do those of us who don't have those tools make more bets?
Frans Johansson: Yes. Great question. I talk about it as resolving uncertainty. So to create that itself, you actually want to bring diverse perspectives into that process. You're coming up with ideas, but you're not sure if they're going to work. How do you resolve the uncertainty? And there are two ways. Ideally, you use both. The first one is to launch multiple pathways and multiple bets. Now, this is what every venture capitalist does. But even inside of corporations, you can think of it this way. And I'll get back to the story of how you can think about that from a resource allocation perspective. But let me go through the two ways first. The large multiple hopes that one is right. When Apple created a new user to sign a user feature on the iPhone, it would create ten separate teams but pick one solution. 90% chance of failure baked in. You can't escape it. That's baked in. The other one is that you increase the rate of iteration. How frequently is it iterating, and how long does it take between the iterations? If you can make the frequency high and the time between durations short, you have more chances to get it right. And when you're iterating, you have another benefit because you are driving cumulative insights. You realize something; you have an assumption. It turned out this assumption is right, but that is something wrong. Now, you focus on that assumption, and you iterate based on that. These are the two ways of resolving uncertainty. And ideally, you do both. You may have 1 or 2 shots at goal, and you have both of them iterating. What does that mean in practical terms? I'll give you an example.
I had the CEO of a large-scale engineering company, Global Engineering Company, talk to me about a project that he had given to a leader. It was awkward because the leader was at the dinner table sitting right next to me, but he was saying, “Look, I gave her $3 million to do something.” And then what came out of it was just okay. What's the question? What should I have done differently? Or what should she have done differently?”
Imagine you have $3 million, but you give her $1.5. You have another $4.5 sitting mentally, and you put it aside. Then I turned to her and said, “Yeah, $1.5. I will take those and spread them out over three bets of half a million each. Now, think about what that does to the probability of success. She went down one pathway. She had to be right on the first try. That's how she set up with $3 million. And by the way, that amount of money made her more conservative. She didn't want to be a failure. She decreased the variance, if you will, the riskiness. So of course it was going to become something that is pretty not remarkable. But instead what you want is people that can actually be a little bit more bolder. But as long as it doesn't work, you still are containing the downside. You're setting yourself up for a much greater probability of success. And, of course, this is what we see over and over again. Venture capitalists turn it into a model. And I don’t necessarily believe that it's helpful for corporations for a number of different reasons. But the math still works out.
Willy Walker: And Frans, if you're sitting around and you're looking at a team of people, is there any certain characteristic either as it relates to their education background, their experience background, their ethnicity, their religion, that says to you that someone that I think would be more either innovative or capable of getting this idea through the various iterations it needs to. In other words, as I sit around and think about who at W&D, we put on new projects. A lot of times, it's the person who happens to be a subject matter expert in the area in which we want to innovate. As you well know, lots of times that's the last person you want on it. They understand the way we do it today, not the way that we ought to do it tomorrow. And yet, at the same time, if I bring in someone from outside and say, “Sally Jones, has worked in lots of different industries, knows nothing about this part of the mortgage industry. But boy oh boy, is she going to come up with some great idea. I can guarantee you the person whose team I put her on sits there and has an organ rejection as it relates to her coming onto the team.”
Frans Johansson: Never go anywhere.
Willy Walker: Exactly. How should business leaders, whether it's of a team or whether it's of a whole company, think about putting together innovative teams?
Frans Johansson: It's another great question, and I will take a minute to talk about it. Briefly, there's a very simple answer, but it has many implications. The simple answer is you want to think about it as a team and not a person. In other words, what team is this person joining? Or if you are hiring the person who brings in the person to build a team? What type of team is that person building? But is the team that's going to become powerful? That means that there's room for experts. But you absolutely need to have people in there who basically do not have as much expertise. Because whatever it is that you're doing is going to be basically measured against what the world knows to be true. I'm doing it within quotation marks because, over and over again, what the world knows to be true turns out actually not to be true. However, the knowledgeable people, especially experts, are the ones who are stating this. There needs to be a dynamic between expertise and some level of known expertise. Suppose they complete each other's sentences from day one. That's a problem. And then, if you can, add on other layers of diversity to that. Great. I talk about diversity in four dimensions.
Who you are is your age, gender, race, sexual orientation, and so on. What you do is your education, your function, your industry. How do you do it. Are you extroverted or introverted? Then, with whom you do it. These are the networks that we built in our careers and lives in our community, in our company, in our industry, and so on. These are the four I call Four Operational Definitions of Diversity. There are others. But for any given corporation, I think these are the only ones that really matter. I would look at my team and ask myself, “Where's Delta the greatest?” Is there some area where I have virtually no diversity? I could probably benefit from adding something if I'm thinking it's a laying out a puzzle. But this won't work. The implication of this is great. But how do you get this team to actually get anything done? The benefit of a team where everybody can complete each others sentences is that they will get started on day one, and they'll execute. They are running towards a particular place quickly. Now, it might not be a good idea, but it'll get it done quickly, and it'll get to them on schedule and so on.
The diverse team is a little bit different. In this one, I talk about a concept called innovative heartbeat. The idea is that you expand out and bring in different perspectives, and then you have to cut off that discussion and end it. Because there's always a new idea. There's always a new concept. Now, you open it up, and then you close it, and then you execute, say, it is kind of like an EKG. A heartbeat if you listen. Boom, boom. Boom, boom. Like that. Open. Close. Execute. That is basically the iteration cycle the team should go through. And if they are able to be inclusive of different perspectives then they're going to be incredibly powerful. Richard Branson starts Virgin Airlines. How many years, days, and hours do you think you have run an airline before it started? Zero. Didn't prevent him from actually creating one of the most successful airlines in history. You will find this notion over and over again. This is particularly true in tech. But the heart of it is true everywhere. Now, some areas require deep expertise. I was meeting earlier this week with somebody in the biotech area. They're working on this molecule. You need PhDs to even get into its space of it. They asked me the question, “Well, what is the lower limit? How do I know? What is the lower barrier of expertise to even bring into the team?” Great question. The answer is whatever the team looks like; they need to be able to recombine ideas and build upon each other's concepts. If I can't even understand what you're talking about, I don't really belong on the team. I need to have the ability to get into the playground into the sandbox. But if I can do that, I can probably add value, whether it's as a temporary guest on the team or as a permanent member.
Willy Walker: You've talk a lot in The Medici Effect about the fact that all new ideas are really combinations of old ideas. But then, as you said previously, in your presentation to us out in Las Vegas at our All Company, you put up a bikini and a beach. There's nothing really innovative about that. Bikinis and beaches have been going together for years. But then there are some other revolutionary concepts that have changed the way that the world works. How do you create the framework that gets people to innovate on existing ideas that are revolutionary? In other words, that seems to be the trick. I use the example to you of an online marketplace for buildings. Two big ones exist out there in our industry today. I'm sure that there's somebody else trying to create a new mousetrap in that space as we speak. And there are plenty of people who say, “No buildings will ever be traded online. They'll always be traded by individuals because they're big investments. And you need the personal input of a person.” We thought that was the case with block trades of stock way back in the early 1990s. Quite honestly, we had big stock brokerage firms that would say that if you wanted to buy $1 billion of stock in IBM, you had to go through a broker. Guess what? There are billions of dollars, trillions of dollars, that are traded every single day without a single human being there. Someone came up with the idea of making this an electronic transfer. And lo and behold, my Uncle Sam, who was a stockbroker, is no longer needed to actually execute the trade. And the next thing you know, a firm like Kidder Peabody, which was a big stock trading firm, doesn't exist anymore. And Charles Schwab and now E*Trade are all out there doing it.
My point is this: the idea of an electronic exchange for buildings exists. It's not new. We can put ideas and people to it to say, “We can do it better than there's one called TenX that's out there.” Can we do it better than TenX? But how do you get that innovation that says, “TenX hasn't really worked? It's good. It does some. But it's nothing close to an industry standard. We're not disintermediating.” What's the special sauce that says who needs to come into that kind of a conversation to say, “Rather than building an online exchange, you need to think about it like this.” And I'm putting you on the spot because I don't expect you to come up with the actual idea. What I'm trying to get at is the process. In other words, what do you add to that to innovate?
Frans Johansson: Let me give you a moment so that your listeners that are on here right now have a sense of how I do I know what I'm talking about in this regard. Because I've spent years not just talking about these ideas but also operationalizing them, what that means is working with hundreds, 400 or 500 companies in the global 2000. And then lots of companies that are underneath that about what is it?
I want to break new ground. How do I do it? I get the concept of diverse teams, great iteration awesome. But, like, “How do I actually do it day to day?” My belief was always that the way organizations approach change in ways of working and behaviors is way too complex; it has to be simple and even simpler than that. That's the core foundation of how we think about it. And that's what enables us to buy this to build this enterprise platform. And here's what we noticed. Let's take this exact scenario that you're talking about. And by the way, I went through a fair number of customers last week. Different industry, but similar type of challenge. We need to break new ground. This kind of already exists in the healthcare space. But like what do we need to do differently? You need to bring in a vast array of different perspectives. Number one can be people, but you can also have different sources of inspiration for it. Both of these things can work. This is kind of the ideation phase. This is a way of hacking unique ideas. This way, I talked about uniqueness before. You need something that is different.
The way we talk about it is to look at all of your existing resources, answers, and relationships right now. If you talk Walker & Dunlop, anybody who is listening to your own organization map them out. What are these assets, these resources, these products, these relationships? And then, what are some of those that you can innovate and change? Can you add another concept, another business model, another approach, another distribution channel, or another way of thinking about the branding? Whatever it is, you're basically going through an exercise where you look more holistically at areas within your business that can tackle this opportunity. The reason this is important is that if you don't start from where you are now, you will come up with some great ideas. But who's going to make them happen? What you're going to acquire a new entity to do it. You're going to build something from scratch. There's no way.
One of our customers is a company that does the black label credit cards. The engine underneath wanted to get into another space. We worked with them to figure out an entirely new vertical. It started off with understanding the vast array of assets they had. Turns out that they were also providing financing for veterinarians, which was a very small part of business, not even a percent. But through that came an idea that within four years, added about $3 billion in market cap for them. I love this story because I was there when this idea originated. I know exactly when it was originated. I know the moment because it was written down, and then it went from there to about four or five years later. They built a whole new vertical. And then they sold it, and through that, I think, gave them a $2 or $3 billion bump in market cap.
You can't start from the place of the business where you have lots of people thinking about solutions all the time because you will probably have to go through all of them already. You're not going to find the unique insight there. You want to start from the business where there is something that maybe holds some promise, something that has not been fully executed yet. Then, you want to have diverse perspectives to attack that part of it. And through that, you might have an opportunity to create something truly unexpected.
A number of years ago, Pfizer worked on a heart drug, but it wasn't very good. Yet, many of the test subjects kept asking for more of the test pills of this drug. And frankly, they didn’t understand why. But when they investigated, it turned out that this pill had a curious side effect, particularly for the guys. For a lot of these men it allowed them to rise to the occasion. It turns out was Viagra one of the most successful drugs of all time. They're like, “Wait a minute, totally unexpected. This is not a heart drug. Are you kidding me? We should be doing this instead.” Every company has these opportunities embedded in them. But instead, it tends to look at the number one larger space and say, “What can we do with that?” But you probably already have people trying to figure that out. You're not likely to find the unexpected gem there.
Willy Walker: When we're talking about staffing these teams, one of the things I was using was the example of bringing someone new to a team who comes from outside. In The Click Moment, you debunk the Malcolm Gladwell 10,000-Hour Rule. Talk for a moment about the debunking of the 10,000-Hour Rule as it relates to innovation and why you really from your perspective. You don't want people who have 10,000 hours to “Become the experts in it you want for your thinking, and you want serendipity to exist.”
Frans Johansson: The 10,000-Hour Rule became very popular because people could intuitively sense that it was true. I like to talk about Serena Williams, for instance, one of the most formidable tennis players who has ever lived. And she's a perfect example of the 10,000 hour rule, more than 10,000 hours. She won the U.S. Open in 1998. I think she was 17 or whatever she was. It was very young. And for the next 20 years, she dominated. She dominated in tennis. And this is an example of the 10,000-Hour Rule. And, of course, really, any athlete has some element of that. They didn't wake up one morning and become the best at basketball or golf or whatever it is. This rule has been used to describe success more broadly, but it doesn't really hold up. I mentioned Richard Branson before. How many hours running an airline? Zero. Reed Hastings. How many hours did he have running a video rental company? Zero. Started Netflix. And if you have it, it doesn't guarantee that you will be successful. You have people who have deep expertise in areas. Are they breakout success? No. The point that I was making is the 10,000-Hour Rule doesn't really predict success. You can get it if you don't have it. You might not get it if you do have it. Why? This rule works for Serena Williams because in her world, the rules of the game never change. I'm wrong here. Sort of a representation of a tennis court. And the measurements of the tennis court haven't been seen in 100 years. And the rules are super slight. It used to be that if you wanted to serve a ball in tennis, you needed to keep one foot on the ground. They changed their rule in the 60s, so now you can jump and serve. That's what change in tennis looks like. You change every 10 or 20 years. A new rule. How does it work for the rest of us? How does it work for you?
Interest rates change. Technology change. Buyers change. People can buy properties. Regulations change. Everything is constantly changing. The box is constantly being redrawn. It follows then that the reason Serena is really successful is she can just keep on. She knows what she needs to do to be successful. She has to do better than everybody else. But for the rest of us, something else is required. Expertise is not enough. And it's really the combination of expertise and other insight that sets us up for success. Because what makes us powerful and successful is some level of differentiation. Are we doing what everybody else is doing? Fine. But we need to do it faster, better, or cheaper. Ideally, we are not doing what somebody else is doing because there's a nuance in there somewhere, and we understand that nuance. We can lean on that nuance. Are there network effects that we can build? They are hard to cut into. These are the types of things that build businesses that can be sustained. And that usually comes from usually some unexpected insight. And that has to come from somewhere else. The 10,000 hours were not going to get you there. The shelf life of expertise is basically is shrinking. That's the world that we live in right now.
Willy Walker: And as I hear you talk about that, it makes me think about AI. It makes me think about the use of AI, and AI will typically produce the same answer for everybody who applies it unless they have their own AI engine. It's the use of that data and analysis with the expertise on top of it that will create real value. If you go back to the four qualities that sit within each one of us, the second one you mentioned was education. If you were back at Brown today thinking about the world that we live in today, what would you either be studying or what experience would you seek that would allow you to differentiate on either skill two or skill three?
Frans Johansson: Wow. I'm not totally sure the question is fully answerable. Because that question is asked almost every year, you can look at the answers, and they change. What does that mean? It means that the answer is not stable. If the truth was that when I'm 15 or 18, I should study X in order to benefit when I am 28. Then X should stay the same for those ten years. But it doesn't. It keeps on changing. It keeps on evolving. That's the first thing about it. Now, that said, “I would want to get into any field or study anything that makes me more likely to become adaptable.” Whatever I'm doing, I would probably want it to be something that is changing, moving, and whether that thing exists or not. When I get older, I will at least I am learning the skill set of adaptability. I'm learning what it means to pivot, to change, to switch, and to look at other solutions. I'm learning both the value and the challenges of relying on experts because, all of a sudden, nobody cares about the expertise anymore. All of those things are the things that I would want to set myself up to learn while I'm in college. Not a specific subject but an approach to success. That approach would prepare me for a future that is changing at record speed. AI is flipping it for everybody. And lots of people are talking about whether they know where things are going or not. I met with Yann LeCun, who's really the inventor of machine learning, earlier this week. His point is that we have seen these types of shifts before. Talk about the printing press. It tore down kingdoms, ended the feudal system, and did a lot. AI may have a similar impact on our society, but to understand and predict exactly what that impact is going to be is probably a fool's errand. But knowing that it will be different, I think that's the key. And certainly, in my company, the moment we saw this happening, we put resources towards incorporating that into our solutions, which has been a huge benefit. It is put in a completely different category of solutions, and it's changed the way we do our work. And that's it. Adaptability is probably the key.
Willy Walker: And do you think that there's a lot of talk right now, Frans, about whether we've overinvested in AI. Over the last two years, AI has become the catchword for everything that we haven't really commercialized AI. It has huge capabilities. I guess the easier question to answer is this: “Have you seen AI change the way that your client companies are engaging in innovation?” And if to those people listening who may not be at a company that is innovating fast enough, what are the telltale signs of those companies that are embracing this world of change? I think one of the things that's very challenging for companies like Walker & Dunlop is that we're not trying to build our own AI; we're going to be users of AI. We're not out trying to build a large language model. At some point, we're going to rent it from somebody where I just yesterday was in our Salesforce database, and we're playing around with the Salesforce AI Tools. Salesforce is going to put billions of dollars into creating AI to be able to probe into the database. We're not going to go create it at Walker & Dunlop. But that doesn't necessarily mean that we're putting our head in the sand as it relates to the implications of AI.
What are you seeing, or what do you counsel your clients about as it relates to this new frontier of AI? To either be more nimble to sit back and wait for it to come to them to make sure that there is somebody on the senior management team whose only job is to focus on AI and how AI will either enable or disintermediate their business. What are some of the things you think about that?
Frans Johansson: Yeah, we could probably do a whole show on AI. But I'll get to a couple of things that I'm seeing right now. First of all, the successes today tend to start internally. Think of it as the efficiency of productivity within an organization. What I see there is a move from, let's just use ChatGPT, to at least try to build up their own systems that has knowledge of their own business. It becomes a tool specifically for them. I think if one doesn't know where to start, that's a good place because it should be pretty straightforward to see efficiency benefits after six to 12 months. That can keep on feeding this idea. That's probably when I think about the successful implementation of AI in a business. I have more often seen them internal and external. Now let's go over how this impacts our products and customers. Here I think that there needs to be a lot of room for experimentation. One has to do that carefully because I talk about these small steps that you can take to experiment with something to iterate, with whom are you doing it for or if the customer is open to it. When we're introducing something new for a customer, we may ask, “Well, look, we're going to try this thing. It's a beta. We want to make sure that you are okay with that. And if they are great, we can go, and we can try.” But that's the process that I generally see here as well. A lot of regulations are coming fast and furious. The EU has set up a regulatory framework that is certainly more restrictive than that of the United States. And companies that are Global have to think about how to relate to that.
The generic message would be, “Right now, as we speak, probably today alone, two or three new AI tools would become available. I would encourage not just one person, not just two, but more people in my organization to explore AI tools out there that they think would be helpful for the business.” There's no way that one person is going to know all of them. It's just too much, too complex. And you also don't want everybody holding on to the exact same tool. This is where the diversity comes in. You want people to actually have a fairly large surface area in the world of AI tools out there. Yes. You're not going to build them. Maybe in the future, at some point, you might. But right now, no way. Then, you want to increase the surface area of exposure to those tools that comes from diversity and from your team and people on your team thinking about the opportunities differently. I saw this here as a tool. I think this is interesting. That to me, we would start exploring, understanding, and then having conversations about what is happening. Where you can raise the permission structure to explore different tools. With your IT department, they’re always going to elect towards the most conservative. You have to think that through a little bit. But that's what I'm seeing successful companies do. That's what we recommend them to do. Increase the surface area towards AI tools. Learn what's out there and use your own people who know a lot about your own business to do so, and then collate and discuss. Figure out what you can do with all this newfound opportunity.
Willy Walker: Final question, Frans, as you think about diversity and innovation, DEI as a concept has gotten just like ESG. Both of them took it on the chin of late when they were very innovative and important corporate efforts I would put forth. And both have come under scrutiny by a lot of investors saying, “Why do you spend time on that, and why would you do that?” As you look at all of the research you've done on highly diverse and innovative companies, what can you say to either group leaders or business leaders as it relates to, if you will, don't get caught up in the branding around it. Understand the underlying business benefits behind it and stick to that rather than getting caught up in the political debate on the outside.
Frans Johansson: This has been our entire MO since the very beginning of this. Do I care about diversity and inclusion for human reasons? Yes, I do. I can hearken back to how I grew up. But that's not been the problem that we set out to solve. It turns out that diversity and inclusion are not just incidental drives; they are fundamental drivers of it. That's the first thing to think about. If you don't understand that relationship, you should try to understand it. Much of the work that we do is about talking, focusing on innovation, focusing on performance, and focusing on growth. We worked with a customer and the entire thing was about growth for years; it was just driving growth. We helped double their PE in a three-year time frame. A lot of it was about diverse inclusion. Those words were barely used. It just wasn't the environment for that there. So what? Do you want a team to execute? You need that team to be collaborating. You need the team to be inclusive of a different perspective instead of shutting it out. Well, you actually need a different perspective to begin with. That's when diversity comes in. Understanding that relationships become really important.
Willy Walker: If you look at the outcomes, if you look at the companies that are innovating, you look at the market cap of the most inventive and creative companies on the face of the planet, and they have a workforce that is reflective of that diversity. That's the fact of the matter.
Frans Johansson: Thank you for saying that. First of all, that is in terms of the proof points. They've been validated so many times over. It's easy to find. But let me also say one more thing. We're living in a very interesting era right now where access to talent is going to get tougher. If you look at the population pyramid in the United States, right now, we're in this place where it's shrinking. It's going to pop out again in for the next couple of years. However, in the next ten years, the talent pipeline is going to shrink because fewer babies that were born. This has been in the making for 30 years. It is an inevitability. Who knows what's going to happen with immigration, this or that? But it's an inevitability. The company is going to need talent. You cannot escape it. And that talent, the company is going to have to recruit the talent from as diverse a large pool as possible. That's also an inevitability. The question is which organization is better positioned to get diverse talent.
Turns out that diversity tends to attract diversity. Why not? If I'm from joining a team and I'm the only one of whatever it is. Or I am number three, which one of them is more likely to join? It's going to be, and it's not. It's a trick question because the answer is obvious, and it's been validated. And then I want to join the one where there is diversity, and I have a high probability of actually being included. I'm coming off ideas that nobody's going to listen to. Right now, there is a secret race going on where companies that have diverse talent have a cumulative advantage of getting more. Companies that don't are falling behind. These are cumulative, and these are network effects. They will keep on growing in a world where talent is getting less and less accessible. One of our customers in the insurance industry said that the level of excess accessible talent there is about 1%. It's because you can't afford to go after anybody who is interested in joining you. Part of it has to do with the high performance and innovation. Part of it is just pure competitiveness and get access to talent. Because if there's an agreement, the talent does matter. Then, the math will simply prove this out.
Willy Walker: And on that point, Frans, I want to thank you for spending an hour with me talking about all this. It's super important as we are all faced with how to innovate. How do you change? How do you grow? I thought your point previously, as it relates to the sports world, works within very defined lines. The business world changes literally every single day. And I think people forget that. I think people forget the strength of the US economy and the companies that comprise the US economy in the sense that to stay successful, you have to constantly innovate; you have to constantly change what you're doing.
You're a true master at all of this. You're writing, you're speaking on it is fantastic. Thank you for joining me today. Thank you to everyone who tuned in, and I look forward to seeing you sometime soon, Frans.
Frans Johansson: Thank you. The same. This was great.
Willy Walker: Great to see you. Take care.
Frans Johansson: Take care.
