Lessons from Corporate Innovators

David Schonthal author of The Human Element

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We’ll be back later this fall with another full season of Agile Giants, but I wanted to interrupt our break to share a conversation I had with David Schonthal. David is the Clinical Professor of Innovation and Entrepreneurship at Northwestern’s Kellogg School of Business, and the reason I’m interrupting this is he’s got a book that came out on October 5th called The Human Element

It looks at how resistance to innovation and change can be overcome using some really interesting techniques. I think there are applications obviously, for introducing new products and services, but there are also a ton of applications around how you just create change in many of your larger established organizations, and really drive towards transformation. 

Get the book here: humanelementbook.com

Full Transcript

Sean Ammirati (00:08):
Welcome to Agile Giants: Lessons from Corporate Innovators. I’m Sean Ammirati, your host, Co-Founder and Director of the Carnegie Mellon Corporate Startup Lab, and partner at the early stage venture capital fund, Birchmere Ventures. Each week, I’m going to talk to guests who are experts at creating startups inside large corporations. I believe fundamentally, a startup within a company is the same as one inside the proverbial garage: a group of entrepreneurs trying to make the world a better place, using new ideas and inventions. However, I also believe some of the techniques and processes are just inherently different. This podcast is going to explore those similarities and differences.

Sean Ammirati (00:55):
We’ll be back later this fall with another full season of Agile Giants, but I wanted to interrupt our break to share a conversation I had with David Schonthal. David is the Clinical Professor of Innovation and Entrepreneurship at Northwestern’s Kellogg School of Business, and the reason I’m interrupting this is he’s got a book coming out on October 5th called The Human Element, that I think you really want to know about, and if possible, I’d encourage you to pre-order that book. As an author myself, I can tell you those pre-sales make a huge difference. And so, if possible, go get this book right now and start to digest it as soon as it comes out.

Sean Ammirati (01:35):
It really takes a look at how resistance to innovation and change can be overcome using some really interesting techniques. I think there are applications obviously, for introducing new products and services, but there are also a ton of applications around how you just create change in many of your larger established organizations, and really drive towards transformation. So, I encourage you to again, get David’s book, The Human Element. There’ll be a link in the show notes to the book, as well as some different ways that you can follow David on social media.

Sean Ammirati (02:14):
So, David, I really appreciate you making the time to chat today on Agile Giants. I wanted to kind of jump right in. You have an amazing work history that I want to kind of walk through in a couple of steps here. So before we get into what you’ve done at Kellogg and the book you’re writing, just talk a little bit about the work that led up to that. What was your work background before you started teaching?

David Schonthal (02:36):
Yeah, my background is in the startup space, and I spent a long time working in San Diego, California in the healthcare ecosystem, specifically medical devices, biopharmaceuticals, and then ultimately, wound up going to work after a few operating roles in these startups, wound up going to work for one of the funds that invested in these companies, and spent a number of years as a biotech and life sciences investor before moving back to Chicago. And there’s a long story that goes along with this, but my wife and I are originally from the Midwest, decided to come back to the Midwest to raise our family, and had to reinvent what I was doing when I got back to Chicago. For a while, I was commuting back and forth to San Diego, which was not sustainable, then found through just kind of circumstance and a little bit of luck, wound up getting affiliated with IDEO, where my work in venture capital and startups was interesting to them, as they were exploring how they might do more with emerging businesses.

David Schonthal (03:35):
So I started spending some time at IDEO in the business design function, also got an adjunct appointment teaching undergraduate entrepreneurship at Northwestern, and because of wanting to remain in life sciences and wanting to remain in the startup ecosystem in healthcare, founded a healthcare health tech incubator in Chicago called MATTER, which is a 25,000 square foot healthcare innovation center designed to help entrepreneurs who are interested in healthcare and life sciences get their businesses up and running. And so, ever since moving back to Chicago in 2011, my portfolio, I guess, of stuff has included a bit of IDEO and design work, it’s included teaching where I’m now on the faculty at Kellogg, and a fair amount of supporting life sciences, healthcare startups in the Chicago area, and the other piece of my role now is that I’m an operating partner at 7wireVentures, which is a digital health-focused venture capital fund.

Sean Ammirati (04:29):
That’s great. So talk a little bit more about MATTER, because that’s interesting, right? My understanding is it’s a incubator, but also a coworking space, and it’s a little bit of a unique twist on how you guys do that. So just maybe a minute on that?

David Schonthal (04:42):
Sure. So MATTER was started about seven years ago at this point, and it was built for the purpose of convening a fairly disparate healthcare technology ecosystem in Chicago. Unlike Cambridge, Massachusetts, where everything is quite dense and closely packed together, and a lot of serendipitous collisions occur amongst the life sciences and healthcare community, or San Diego, California, where there’s a fair amount of density, Chicago’s healthcare ecosystem extends all the way up past the Wisconsin border, and all the way down into Indiana, and on university campuses that are separated by 25 miles, they’re, despite having all of these phenomenal resources in this great ecosystem, there’s no density, there’s no town square for the healthcare technology and entrepreneurship space.

David Schonthal (05:31):
So MATTER was built in part to create some density amongst these community members, in the hopes that by working closer together and bumping into each other from time to time, some interesting things would transpire, and it has two purposes at this point. One is to help incubate and launch healthcare technology businesses that have, I would argue pretty distinct needs relative to consumer and enterprise businesses, when it comes to regulation and the complex payer system. There’s a lot of specialty requirements and specialty resources that healthcare startups need, and MATTER’s designed, purpose-built to help them, but also purpose-built to help larger corporations who are interested in innovating in partnership with startups, to find those relationships and begin to cultivate them.

Sean Ammirati (06:17):
Yeah, and I think it’s that second point that’s particularly interesting to me, right? Because at Carnegie Mellon, we’ve seen a similar thing. So we didn’t start with any desire of finding one vertical to focus on, but we’ve ended up with a ton of financial services and a ton of healthcare companies spending time with us, because I do think, to your point on kind of regulatory complexity and the need to think about this from an ecosystem perspective, both of those industries do bring some incumbency advantage to them, but they also have this thing where those industries desperately need the fresh thinking that comes from these outside-in partnerships, external partnerships with startups, right?

David Schonthal (06:59):

Sean Ammirati (06:59):
And it sounds like MATTER has created kind of a platform for that to happen organically within the healthcare space in the Midwest, which is interesting to me.

David Schonthal (07:09):
Yeah, I think that’s a good parallel, and I would also add to that, that the cost of failure is really high, right? If you’re in a consumer business, and you launch a new feature and it doesn’t really work, you can go back to the drawing board and iterate on it continuously until you get it right. When you’ve got the regulatory environment and the clinical trial environment of healthcare, failures can be company killing failures. So how do you accelerate that knowledge and that practical know-how to help people make smarter decisions sooner, so that the cost of failure, the likelihood of failure is lower?

Sean Ammirati (07:41):
Yeah. Yeah, completely agree. Okay. So let’s keep moving along. We may come back to that, but I want to kind of get through these, in my mind, they’re not… [inaudible 00:07:51] portfolio stuff, but I want to get to the two other things quickly for context setting here. So then you started teaching more and more at Kellogg, so talk a little bit about that piece of your portfolio.

David Schonthal (08:04):
Yeah. So again, I sort of fell into teaching accidentally. I was working as a mentor at Techstars in Chicago, and the then head of the Techstars program taught a class at Northwestern for undergrads, and he got really busy and asked me one year if I could take that over for him, which I did, and just had a blast. It was a lot of fun to do. It was great to work with the students, and I started designing a little bit of a curriculum, which at the time, I think which was pretty innovative and now is relatively standard, which was this hybrid of design thinking methodology, lean startup, and frankly, the scientific method to help students come up with interesting ideas or hypotheses of businesses, and then test their way into viability, desirability, and feasibility.

David Schonthal (08:51):
And at the time, Kellogg, the Northwestern Business School’s curriculum, particularly for entrepreneurship, was a little bit more of a business plan writing class. It was more of the traditional Steve Blank analogy of smaller companies requiring the same thing as bigger companies, just at smaller scale. Tat was where we were. And so, the dean at the time, and the head of the entrepreneurship program at the time became interested in how to create a course that had a little bit more of this infusion of design and lean into it. So tried my hand at teaching this course at Kellogg as an adjunct at the time, and that went really well, and taught another section, and another section, and after a while, it became pretty much a full-time gig.

Sean Ammirati (09:34):
Yeah. I always say I started teaching at CMU where I would leave before the deans came back in the morning. Right? I would come after they left, and leave before they came back. It was just the evening class, and now it’s like a real job, right?

David Schonthal (09:47):

Sean Ammirati (09:48):
It went from like a hobby to a job, and it sounds like you’ve had a bit of a similar path at Kellogg.

David Schonthal (09:52):
Sort of prototyped my way into academia.

Sean Ammirati (09:55):
That’s right, that’s right. And you actually, you got your MBA from there as well, correct?

David Schonthal (09:59):
I did, I did.

Sean Ammirati (10:00):
Okay. So you were at least a known commodity. I remind them of that at Carnegie Mellon as well. I was in the research fellowship program there and told them one thing, I did not want to be a professor, as I walked out the door, and 20 years later, here I am. But they knew what they were getting with both of us, which at think is good. It’s good to remind them.

David Schonthal (10:17):
Yeah. I mean, I guess at the end of the day, they were the ones that trained me, so there’s some accountability there.

Sean Ammirati (10:23):
That’s good. That’s good. All right. So, you’ve got this interesting sort of portfolio of startup and venture experience working with corporate [inaudible 00:10:31] startups at MATTER, and then doing the stuff with IDEO, which obviously, I think any anybody listening to this knows who IDEO is. You’ve got teaching at Kellogg, and now you’ve got a book coming out as well, right? So talk a little bit about the book.

David Schonthal (10:44):
Yeah. So the book is a collaboration between myself and my colleague at Kellogg, Loran Nordgren. Loran is an expert in behavioral psychology, behavioral design, and influence and persuasion, and the two of us became fascinated by the same problem that we saw out in the world, which is there are great companies with great products and services, there are change makers with excellent ideas about how the world could be better, yet, despite how great these products and services were, despite how great these ideas were, they failed to get traction in the market.

David Schonthal (11:20):
And that got us interested in thinking about innovation, less on how to make ideas more magnetic or how to make new change initiatives more powerful, but instead, how do you think about the other side of the innovation equation, which is making sure that the people that you are designing for, making sure that the people who you’re trying to effect with positive change, actually are willing to adopt those solutions that you bring into the world. And that got us interested in this topic that we call The Human Element, which is why people resist good ideas and new ideas, and how to overcome that resistance.

Sean Ammirati (11:54):
That’s really interesting. So how would you put that into kind of the product founder fit, product market fit scale? Where do you see that? Where is that? Is that in step two, step three, a little bit of both? How do you think about that in the sort of progression of a startup?

David Schonthal (12:11):
Yeah. I mean, our hope is that by evaluating what we call these four frictions, the four frictions that stand in the way of innovation, they’re present in almost every situation where you’re trying to get somebody to change from what they have been doing, to what you are hoping they will do in the future. So these things are universally present, but to varying degrees, and our hope is that during the product development process, during the product market fit customer development process, then in addition to finding interesting market opportunities for a solution, or in addition to designing the right solution to address an opportunity, innovators and entrepreneurs will begin to forecast what frictions may stand in the way of that progress, so that they can build mitigation strategies and techniques into the rollout, into the go-to-market strategies, just like they would with any other part of their business model.

Sean Ammirati (13:00):
Yeah. So I really like this, and as I heard about this from a mutual friend of ours, my mind kind of started racing, right? Because the way I typically talk to entrepreneurs about this today is make sure that the solution is so much better than the status quo, that you can overcome this friction, right? So, we often call it The Goodness Factor, right? How much better is this than the status quo? Or Peter Thiel talks about kind of you got to be 10 X better than your competition, but I think what you’re saying is there are things you can do beyond just the ROI that changes that calculus for people, is that right?

David Schonthal (13:38):
It is, and I think that to some extent, people’s instincts about how to overcome the status quo are inaccurate or incomplete. I think most people’s view is if the status quo or the habit of the presence is strong and sticky, the way to overcome is to make that solution 10 X better, to make it so irresistible that people have to give up the status quo in order to move to the new thing. What we know to be true is that the status quo is often far stronger than people give credit for. Even though they know there’s a better way to do it, even though they know the spreadsheets that they’ve been using to manage their supply chain are outdated, and there’s plenty of technology that can make life easier, the amount of design that has gone into integrating this spreadsheet into the way they work, and integrating it into the way they live, and the worry they have, or the anxiety they have about how long it will take them to get up the learning curve of the new solution., these are powerful psychological forces that stand in the way of change.

David Schonthal (14:36):
And so, our point of view in this book is that it’s less about making the idea better in order to overcome that inertia, which is one of the frictions we talk about, but rather, how do you mitigate people’s overwhelming desire to stay with the status quo? Which is typically, one of the ways to do it is typically to make unfamiliar things more familiar. And so, it’s less about highlighting all of the bells and whistles that make something better, it’s more about taking those things and designing it in such a way that it actually doesn’t feel that unfamiliar to the people that are adopting it.

David Schonthal (15:08):
So a great example of this, which I think most of your listeners will appreciate, anybody who’s ever used a macOS relative to a PC OS, can understand the difference in terms of how Macs speak to their users. And back in the day when Steve Jobs and Steve Wozniak were designing the first macOS, they could have mimicked the operating system of a PC environment, they could’ve mimicked DOS, which people were somewhat familiar with, but instead, in order to activate all of this latent demand, they decided to design their interface in a way that worked the way that your world works outside of computers.

David Schonthal (15:46):
So when you create a Word document, you put your Word document in a folder to store it, and you put your folder on a desktop, and you take it and you drag it into the trash can when you no longer want to use it. And while we’ve accepted these as just typical macOS user experience language now, at the time, they were pretty innovative because it works the way the rest of your analog world works. And I think people look at Apple technology, which is some of the most advanced consumer technology on the planet, people pick up an iPhone and instinctively know how to use it. A two year old picks up an iPhone and instinctively knows how to use it, and if you ask somebody why it’s so intuitive, why do they go and immediately know how to scroll through your photos? People will say, “Well, that’s because the design is intuitive.”

David Schonthal (16:30):
And what we would argue is intuitive is an output of good design, it’s not an input of good design, and the reason that it’s intuitive is because they’ve taken an unfamiliar piece of technology and made it work the way the rest of your world works. So one of the things we talk about in this book, particularly around overcoming habits and inertia, is making ideas that are typically unfamiliar or could be very unfamiliar, and making them more accessible and more familiar to their users.

Sean Ammirati (16:56):
Yeah. So, it’s clear how this would be applicable for introducing a new product or service to a market, right? I guess when you think about this overcoming inertia, another lens of that, I want you to put back on your MATTER hat for a minute. Imagine you’re sitting down with your large healthcare company that’s coming, not one of the startups, but one of these traditional large incumbent players, and there’s a ton of inertia in a place like that, right? And so, how can you take some of these principles and help them to change their organizations as well?

David Schonthal (17:37):
So there’s a lot packed into that question, I’ll do my best. One thing that I think is important to recognize, and healthcare is a perfect example of a complex system, that we often think when we hear principles like friction theory, or we hear things about user experience design, we often think about them in the context of B2C products. One of the things we want to highlight in this book, and I know others have as well, is that businesses are typically just compositions of lots of individual customers. So even side of a medical device company, you’ve got a product manager, but then you’ve got procurement, and you’ve got finance, and you’ve got regulatory, and these are all individual consumers inside of a big organization, and all of their frictions and all of their forces of opposition need to be factored in.

David Schonthal (18:24):
I guess when it comes to healthcare, it really depends on what specific element of healthcare we’re intending to change, but if it is, for example, a whole scale change, like some sort of a transformation project, in fact, one of the stories from this book that I like a lot is about a company called Public Digital. Public Digital is in the business of doing digital transformation, particularly for public organizations like governments and NGOs, but the principle still applies. Though they’re in the business of digital transformation, which is having a moment right now, they never refer to their projects. In fact, one of the things they insist that their clients not do, is talk about things as digital transformation, because digital transformation implies something very large scale, very complicated, probably will take years to implement.

David Schonthal (19:15):
Instead, the way that they approach digital transformation is figuring out one, what is the next initiative, important initiative that a company has to work on? How might digital technology assist in making that go faster, smoother, better? And they carve off one project, like a beacon project, and bring on a small team to bring digital experience into that design, into that strategy. And when it’s successful and it’s getting some traction in the market, they can point to that in the organization and say, “See, see how it’s small scale. This one initiative wound up creating a lot of results. If you’re interested in learning about how digital transformation or digital technology can aid in other parts of the business, we’d love to talk to you.”

David Schonthal (19:57):
I think it’s pretty similar with complex systems in any environment, healthcare being one, how do you prove something at small scale, with a smaller group of individuals, and then be able to point to that and say, “Now, see what we were able to do for diabetes? Let’s apply that to hypertension. See what we were able to do for obsessive compulsive disorder? Now let’s treat more macro level anxiety disorders.” So carving out the right use case, the one that maybe has the most urgent need, and then trying to rally around that and expand from there.

Sean Ammirati (20:28):
That’s great. That’s absolutely great. So kind of get a quick win, use the quick win to generate momentum, right? That’s how they’re doing it with the data transformation projects. What about some of these bigger Horizon Two, Horizon Three type projects? How do you get people bought into those kind of more larger swings, if you will?

David Schonthal (20:52):
Boy, I guess it depends on what we’re talking about, but I’m a big fan of design fiction, and I’m not sure-

Sean Ammirati (20:59):
Talk a little bit more about that. Yeah.

David Schonthal (21:01):
Yeah. Design fiction is effectively creating fictitious scenarios about the future, that you can make feel real in the present. So almost like showing somebody a movie about what the future will look like when certain ideas or products are introduced, so that it can feel more accessible and more familiar today. So when we’re doing work at IDEO about the future of mobility, and we’re talking about when self driving cars are ubiquitous, well, let’s be honest. That’s probably a 30 or 40 year time horizon out in the future. There are going to be things about cities that look different, there are going to be things about human beings that are going to be different.

David Schonthal (21:40):
So how do you show somebody that future, instead of tell them about them? You can create little science fiction vignettes, whether they’re animated or otherwise, and actually get characters to play a day in the life of how somebody’s world will be better when they go down in the elevator and they get into their car, and they’re able to productively do work on roads that are specifically designed for self-driving cars, and parking spaces that are stacked vertically. You can kind of show them the context of the future in addition to the technology, and that’s usually a nice way to get somebody bought into the general principle in the present, even though that future is three or four horizons down the road.

Sean Ammirati (22:17):
That’s awesome. You call those design fictions, is that right?

David Schonthal (22:20):
Design fictions. So they’re based on a view of what the world might look like or will look like, but obviously, there’s a bunch of assumptions that those fictions make, but it’s not about the precision or accuracy about that scenario, it’s more about the general direction about, “Now it’s hard for you to imagine how this thing will fit into your life today, but let me tell you how your life is going to be different,” and then I will show you how that thing fits in.

Sean Ammirati (22:47):
That’s really interesting. That’s really interesting. I’ve not heard that term before. I’ve certainly done I guess, a version of that, like the imagine, and then you paint the picture, but that’s an interesting handle for that. Is that something that IDEO developed, or where did that come from? Do you know?

David Schonthal (23:02):
I’m not sure who coined the phrase “design fiction.” Certainly the first time I heard it is in our work at IDEO. It may exist out in the world somewhere else, and there’s also other versions of it, which are not necessarily fiction, but I love the Bill Gibson quote, “The future’s already here. It’s not very evenly distributed.” And the other way to get people bought into, for example, things related to aging in the United States where yeah, we’re starting to understand how the aging Boomer population will affect commerce, will affect the way they live and we live, but there are other countries like Japan and other parts of Asia that are experiencing this challenge in really meaningful and significant ways today. It’s likely that our future will wind up looking a bit like their present. And so, sometimes in order to get inspired about the future, you just have to get on an airplane when it’s possible to do that, and go visit the future that happens to exist in a country that’s analogous to our own.

Sean Ammirati (23:59):
100%. I actually think, coming back to your point on MATTER, pulling in academic partners as well, that’s one of the hidden gems of pulling in these academic partners as well. Your self-driving car example is a good one, just given where I teach, right? We had self-driving cars driving around the lot that actually is today, the Business School, in the early 2000s at Carnegie Mellon. Now, they weren’t driving fast, but it was just like walking by the self-driving SUV, it was more common to see it, than to not see it when you walked through. And so, you just kind of assumed, “Well, everybody will be exposed to this.” And then, I left Carnegie Mellon, and I started using self-driving cars as an example, and the reaction on Wall Street looking at me was like, “what the [inaudible 00:24:47] are you talking about right now?” RI?

David Schonthal (24:48):

Sean Ammirati (24:48):
And I think universities can provide that, and I think things like university of Michigan, especially if you think about the Midwest, right? You’ve got a broad palette there. You can pull people down from these different academic partners in as well, to talk about whether it’s healthcare, or computer science, or whatever the case may be. I like that a lot. Okay, so you’ve got this book coming out. When does the book come out, David?

David Schonthal (25:12):
October 5th.

Sean Ammirati (25:13):
Okay. So we will do our best to get this out before October 5th then. So that’ll be good, so we’ll get this out. You can go ahead and I assume buy it anywhere you can buy books, basically?

David Schonthal (25:24):
Yes, yes.

Sean Ammirati (25:25):
Okay. And then I’m always interested in authors, so these are a huge process to get these books out, but I also find once you create a book, you start thinking about other kind of meaty projects like that. Anything else that you’re beginning to spend some cycles thinking about around this, similar to your influence and changing behavior stuff?

David Schonthal (25:44):
I mean, I think I’m slightly still in recovery mode from the current project, but what I will say is that Loran and I have thought about if this book is the introduction to friction theory, which is the forces that stand in the way of innovation and change and how to overcome them, we talk about it at a pretty macro level. We’ve got examples from healthcare, consumer technology, public health, change management, influence and persuasion, car sales, but we don’t dive particularly deeply into any one of these categories, and we have often thought throughout this process, “Wouldn’t it be cool to write a version of this book specifically for the social sector?” Or “Wouldn’t it be cool to write a version of this book specifically for healthcare?” Because they have so many unique challenges and so many unique permutations of friction theory that you could go deep into any one of these categories, and spend a fair amount of time.

David Schonthal (26:36):
So if you asked me to commit myself to a next project, something like that is really interesting, and it’s something that we have thought about and been collecting stories around as we’ve written this, but that’s the first thing that comes to mind.

Sean Ammirati (26:49):
Okay, cool. Well, as we kind of wrap this up then, if people want to stay in touch with you, follow along with your work, I’m sure also if they’re following you, they’ll get the links to buy the book when the book comes out. That’s part of the commitment, but what are the places to find you online, follow you, that kind of thing?

David Schonthal (27:06):
Sure. So humanelementbook.com is the landing page for the book where we post information about the book, but also blog posts and thought pieces from Loran and I, also speaking engagements and other things that are coming up, so that’s a really good place. Following me on LinkedIn me, following on Twitter, all good places to see what I’m up to.

Sean Ammirati (27:26):
Awesome. Well, we will link to all those in the show notes. David, thank you so much for making the time today. I really appreciate it.

David Schonthal (27:32):
My pleasure, Sean, and what your listeners don’t know is this is our third attempt at making this work, because of technological issues. So it has been worth the buildup.

Sean Ammirati (27:42):
That’s right. The technological friction that we experienced.

David Schonthal (27:44):

Sean Ammirati (27:44):
It was worth pushing through this to the end, David. So I appreciate it.

David Schonthal (27:47):

Sean Ammirati (27:48):
All right, man. Thanks, have a great day.

David Schonthal (27:50):
You too, take care.

Sean Ammirati (27:56):
I hope you enjoyed this episode of Agile Giants. If so, consider sharing it with a friend, and if you think it’s worth five stars, which I hope you do, please go to iTunes and rate it, so that others can find this content as well.

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