We live in a high-pressure world. This is true both in a macro and micro sense. Countries and companies are faced with ever-faster shifts in technology and public opinion. Work is getting more and more creative, and less and less well-defined. Most predictable work is automated as soon as there is enough data.

What is then the long-term defensible competitive advantage in such an environment? Constantly adapting to new, complex situations. This is true as much on a personal level, as on an organizational level.

The automotive industry for most of its existence has been the epitome of rational efficiency. Everything is optimized, price pressured, planned, and predicted. And due to the sheer size of the market, and capital expenditure required, it has been a generally stable environment. There has been a limited pressure to reinvent yourself.

One consequence of this stability is a comparatively low spend on R&D. I think there is a strong link between the predictability of a domain, and the propensity to spend on R&D. Pharmaceutical companies for example are designed to deal with uncertainty and risk. Their main activity is triaging potential drugs, evaluating them in a sequence of increasingly large trials, and then proving their efficacy through statistics. This is a high-risk, high-reward way of working that requires state-of-the-art research and a very dynamic mindset. Imagine if an automotive company had ten models in its product development pipeline, expecting only one or two to make it to the market?

As can be seen from the table below, automotive companies spend 3-8% of their revenue on R&D. Most of their activities are related to the manufacturing and distribution of vehicles, not the development of novel technologies. Pharma on the other hand spends 17-25%.

At the top of the list in absolute spending is a former book store. Who could have imagined 20 years ago that the world’s biggest spender on research would be a retail company?

One consequence of the perceived stability in automotive has been that most vehicle production projects are planned in minute detail. Automotive companies love planning. There is a “Start of Production” date that engineers and managers live by. All activities need to be time-boxed and put in a sequence all the way up to the SoP. Thousands of engineerings and hundreds of companies need to deliver according to plan, or the vehicle will be delayed.

As you might have noticed, Tesla (mostly) does not follow the traditional model year tradition. The value of a Tesla is determined by its features, not the date it was manufactured. With hardware and software updates being released continuously, the manufacturing year is not significant other than as a proxy for wear and tear.

It’s much more demanding to operate in an environment where everything is uncertain. Uncertainty is not, by the way, the same as “disorder”. You can work in a very structured way with plenty of uncertainty.

As a founder, I understand more and more why a completely incremental approach is so hard to maintain. There are three forces that contribute to a tendency towards detailed planning.

Budgets and capital expenditure. Companies by definition only fail for one reason: they run out of money. It takes courage and deep pockets to deal with risky and expensive product development. Chances are it takes much longer than expected, and the risk is that you run out of cash. But that’s also why innovation is rewarded by the market. Profit is the reward for risk-taking.

Fear of failure. Fear is the mind-killer. Humans are programmed to avoid discomfort and danger. It’s deeply rooted in our subconscious. The deeper your fear of failing, the lower the probability that you will create something truly unique and great. Organizations can easily end up preventing all possible negative outcomes and thereby completely eliminating any chance of novel thinking. (Of course, the ability to take risks in life is also determined by other things, like the safety net of your country, social class, etc.)

Intellectual Laziness. High-performing people are typically explorers. But most people are, by definition, average. The average person doesn’t want to go to work every day without knowing what to expect. If they have to do that, they will get exhausted and complain. A lot. So organizations, as they grow, slowly adapt to comfort those seeking predictability. I try and avoid hiring people who seek “an easy job”.

Ironically the risks associated with systematically avoiding risks are larger than suffering the occasional negative experience. Personally, I think this is what causes larger companies to lose their edge. The challenge of navigating the risk-reward nexus can be found all the way from starting a company, to funding it, to setting the vision and scope for the company and maintaining its edge as it grows. It’s really hard to think really big. It takes a tremendous amount of courage and a gigantic risk appetite. You have to be comfortable with the risk of failure.

So, what to do then? How do you run a company when you have no idea what to expect?

Empower your team

Hire amazing people and give them the resources and the mandate to solve hard problems. Put everyone close to the issue they are solving. Allow everyone to talk to each other without being forced to go through layers of management. My mentor has always told me: “ smart people with the same information and the same goals usually come to the same conclusion. You just need to ensure they have the same information and the same goals.” I firmly believe in this.

It takes a lot of patience and trust to let your team solve audacious problems without detailed supervision. But it usually pays off fairly quickly.

Strive for greatness

Freedom is powerful. But it also requires a mission. You need to be motivated to perform to capture the benefits of freedom. There are many ways to find motivation; making a client happy, saving the day, learning new things, meeting interesting people, getting rich, traveling the world, getting recognition from your peers. Whatever your source of motivation, there needs to be urgency. Time is always of the essence.

Dare to demand outstanding results from yourself, and those around you.

Focus

The hardest thing in life is saying no. To friends, to family, to colleagues, to customers. To yourself. The inability to cut away the noise often dilutes strategies. We cannot consider every option and every alternative all the time. We’d get nowhere. Just as a person cannot be good at everything. The curse of endless opportunities is limited time. We need to choose and learn to ignore that which we are missing out on. I sometimes err on the side of simplifying too much, but I’d rather do that than get stuck thinking about all options. I pick something, try it, learn, and move on. This approach isn’t just personal, I incorporate this mentality at Annotell too. That takes courage and leadership. And a fair amount of tolerance for conflict, since saying no means disappointing others.

Seems simple, right? It’s not.

It’s a ton of hard work. It requires very strict hiring, thoughtful work from everyone involved, patience, and perseverance. And it’s fragile. A few bad apples easily spoil the bunch.

The best way to operate in a fast-paced environment that requires solving complex problems is to empower your team, strive for greatness, and focus. By setting huge goals, allowing time to explore, having the patience to spend on R&D, and the courage to trust your team to solve audacious problems - you will create a ton of value. Basically: Enormous expectations but also deep trust. Sometimes you will fail miserably, but that’s part of life. No risk, no reward.