What Really Makes or Breaks Radical Innovations
By Zack Anchors
Economist Adam Smith laid the theoretical foundation for capitalism in 1776 when he described how the individual pursuit of self interest acts as the "invisible hand" of the market. But when Stanford business professor Hayagreeva Rao dug into the history of some of the world's most significant economic innovations, he saw hands at work that were neither self-interested nor invisible.
In his recent book, "Market Rebels: How Activists Make or Break Radical Innovations," he argues that it's often groups of people fighting collectively for a cause -- or the "joined hands of activists" -- that create, and sometimes hinder, economic growth and innovation.
Rao spoke with BNET about who these "market rebels" are and how they shape entrepreneurial opportunities.
BNET: What is a market rebel?
Rao: "Market rebels" is a category that can include businesspeople, entrepreneurs, activists, consumers, and nonprofits. Market rebels are often not isolated individuals, but instead groups of individuals who are fired by a cause -- a cause that is far larger than mere profit or mere self-interest. They are bucking conventional wisdom one way or another, either because they want to promote a new industry or technology, or because they want to block the emergence of a new industry or technology.
BNET: What's an example of a market that was created by market rebels?
Rao: People think that Henry Ford created the early automobile industry. It turns out that the fate of the industry was shaped first by automobile clubs composed of consumers, many of whom were physicians who had to travel long distances. The first gasoline car was met with astonishment from the public. One electric car producer asked, "Why would you want to sit on a bomb?" Many farmers thought it would destroy farmland and anti-speeding activists worried about pedestrians.
The automobile clubs came along and organized competitions called "reliability contests" designed to demonstrate that the car was viable. The activists also agitated for better roads -- if there weren't roads, there couldn't be a car industry. And they worked with states to develop certifications and car licensing to help remove dangers to public safety.
All of these efforts made the car uncontroversial by 1912, when Ford came along and mass-produced the car.
BNET: And what's an example that's nearer to our own era?
Rao: Take the modern beer industry. Any economist will tell you that when three of the major players control 98% of the market, nobody else can get into the market. Yet America has many more independently-owned breweries than other countries where top producers control far less of the market. That is due to the craft brewing movement, which was led by beer enthusiasts opposed to industrial beer. These enthusiasts wanted to make beer using authentic ingredients and on an artisanal scale. All the brew pubs and craft breweries we have today all came about because of this movement. Rather than taking over the market, they've actually expanded the beer market and added new opportunities in the market.
Activists sometimes also rise to block organizational innovation. That happened in the 1920s when activists attempted to block the spread of chain stores across the country.
BNET: What determines whether market rebels are successful or not?
Rao: There has to be a hot cause that ignites emotion. And once there is a hot cause around which people rally, you have to motivate people in insurgent and unconventional ways. You've got to be edgy and unconventional. Take microbrewing: The hot cause was opposition to big beer. How did they mobilize? They had beer festivals. The festivals were fun, but they weren't all revelry. It provided a chance to share ideas and connect beer lovers with beer producers.
Another example is Mahatma Ghandi and the struggle for Indian independence. He wanted to mobilize 400 million Indians against the British when 90% of population was illiterate. So he marched to the sea with a bunch of people and said, "Let's make salt. It's in the ocean, so it's free." But there was actually a salt tax levied by the British. So Ghandi was able to use salt as a symbol to very crisply communicate the nature of the injustice.