23 Mar March 24, 2020 – Innovator’s Spirit Chuck Swoboda and Grow the Pie Alex Edmans
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Chuck Swoboda – LED Lighting Innovator and Author of The Innovator’s Spirit: Discover the Mindset to Pursue the Impossible
Innovation has to be new, has to solve a problem, and has to
create value. We have over 5,000 patents, but only a few turned
into innovations. Creating value is the hard part.
Chuck Swoboda retired as chairman and CEO of Cree in October of 2017. While CEO of Cree, Chuck led the LED Lighting Revolution by developing innovative, energy-efficient, smart LED lighting that fundamentally changed the way people experience light and drove the obsolescence of the Edison light bulb. The company grew from just over $6 million in annual revenue in 1993 to nearly $1.7 billion during his tenure. He transformed Cree from a start-up into today’s market leader in LEDs, LED lighting, and semiconductor solutions for wireless and power applications. Chuck expanded on the company’s culture of innovation to drive technology development and new product innovation, resulting in more than 5,000 issued patents. He worked in most every part of the company during his career and was a co-inventor on 24 U.S. patents covering a wide array of LED and Lighting related technology. Cree was recognized as one of MIT Technology Review’s 50 Smartest Companies in 2014 and as one of Fast Company’s World’s 50 Most Innovative Companies in 2015. Chuck was named Ernst & Young’s Entrepreneur of the Year for the Carolina’s in 2010. Chuck is Innovator-in-Residence at Marquette University and President of Cape Point Advisors.
Alex Edmans – Professor at London Business School and Author of Grow the Pie: How Great Companies Deliver Both Purpose and Profit
The tech companies sitting on hundreds of billions are like
contented cows sitting happily on their pile of cash. I think
its socially destructive.
Dr. Alex Edmans is Professor of Finance at London Business School and a leading authority on reforming business to serve the common good – using solutions based on rigorous evidence and the importance of both investors and stakeholders. He has spoken at the World Economic Forum in Davos, testified in the UK Parliament, given the TED talk ‘What to Trust in a Post-Truth World’ and the TEDx talk ‘The Social Responsibility of Business’. He also serves as Mercers School Memorial Professor of Business at Gresham College and on the Responsible Investment Advisory Committee of Royal London Asset Management. A graduate of Oxford University, Alex worked for Morgan Stanley in investment banking (London) and fixed income sales and trading (New York). After gaining his Ph.D. in Finance from MIT Sloan as a Fulbright Scholar, he joined Wharton in 2007 and was tenured in 2013 shortly before moving to London Business School. He is Managing Editor of the Review of Finance, the leading academic finance journal in Europe; has written for the Financial Times, Wall Street Journal and Harvard Business Review; and has appeared live on Bloomberg, BBC, CNBC, CNN, ITV, and Sky News. In Grow the Pie, he explains how companies need to determine their purpose not in an overarching general way but with a narrow, specific focus.
Highlights from Chuck’s Interview
The Innovator’s Spirit
It all starts with creativity. But I think we mainly confuse creativity, invention, and innovation. We kind of use all the words the same, and they’re not the same thing. So, for us at Cree, innovation was really three elements: it had to be new, it had to solve a problem, and it had to create value. Creativity is one part of that. Bringing up the new stuff, it’s actually kind of easy. We had over 5000 patents, but only a few of those turned into innovations, because it’s actually solving the problem and creating value that’s the hard part.
It is different from entrepreneurial creativity, it’s constant innovation. But we weren’t actually asking them to go create patents, we were asking them to solve problems. The patents weren’t the point of it, it was solving the problem. I think this is really one of the key things that so many entrepreneurs miss; we think it’s about the idea, but if you want to be successful, you have to create value somewhere. I think for our scientists, their expertise was starting with the problem that needed to be solved. The way to think about it is, so many of us get excited about the feature, and I think what we got really good at is understanding that it’s creating a benefit for someone that really mattered. So, we did that on an ongoing basis, and to me, entrepreneurship is just doing that on a smaller scale.
Originally, when we started at Cree, there was no blue LED so we had to invent a blue LED, and then we had to invent a white LED. That’s the first thing that had to happen to even make Solid State Lighting or LED lighting possible. The next thing that happened was as we got into the business of making commercial lights. Imagine the candlelight in your ceiling as a little six-inch downlight, so we came up with a replacement for that. Honestly, the big breakthrough was, I want to say 2013, when one of my scientists came into my office one day and he said, “Hey, I know you said not to work on this, but I’ve invented an LED light bulb.” Now understand, we were the LED supplier, we wanted to sell the LEDs to the light bulb makers. But after three years, they couldn’t figure it out. For whatever reason, they couldn’t get out of their own way. So, he said, “I got frustrated, you said not to work on it. What do you think about this?” He showed me a light bulb and we said, we’ve got to go do this. So, Cree is probably best known for launching the first really commercially viable LED light bulb. Today, if you walk down the aisle of your grocery store or your home improvement store, you’re going to see mostly LED light bulbs, and that’s because of what we did back in 2013 when we came out with the first sub $10 light bulb. The trick was that it wasn’t the most high-tech thing we ever did, but it did some pretty basic things; it looked like a light bulb, it worked like a light bulb, and it was cheap enough to get someone to try it. So, while we have all those patents, probably the most low-tech thing we ever did was making LED light bulb, and that’s what we are most famous for. Honestly, it was also probably the least profitable thing we ever did. It was a great brand building and marketing play, but selling the LEDs themselves and selling the semiconductor wasn’t great. Cree at its core is actually a material science semiconductor company, LED lighting was just one of the three business areas. It was actually making the LED themselves that was a far more profitable business.
Here’s how we got into the business. We first invented the blue LED, found some people to buy it. We tried to get other people to buy the blue light to make white but they wouldn’t, so we made our own white LED. Then we had a white LED that we thought would work for lighting, but none of the lighting companies would buy it from us. So, I spent several years pitching every lighting company that they should buy our LED to make their own LED lighting products, and nobody did it. I said, why not? They said, none of our customers are asking for it. I said, if you don’t show it to them, they’re not going to ask for it. They said, but I get paid to do what my customers are asking for. Finally, we got frustrated and we did it ourselves. So, we went from materials company to LED company to getting into the LED packaged LED business to eventually making lighting products, because if we didn’t, no one else was going to do it.
In the beginning, we started something called the LED Lighting Revolution. We actually marketed the idea, thinking everyone would get excited. We got more awareness, but people still didn’t start buying it, and it wasn’t until we put actual products in people’s hands. So, you have to actually show someone what the future looks like if you want them to buy into it. People aren’t very good at imagining something they’ve never seen or experienced before. It was actually making the LED lighting products by which we created an LED lighting industry. The original reason we did it by the way was not to become a lighting company. Our idea was, we called it the rabbit strategy; if you think about the Greyhound race and they chase the rabbit down the track. We were going to make LED based lighting products, convince customers they wanted them, and force the rest of the industry to get into the business so we could sell them LEDs. Now in the end, everyone buys LEDs today.
Just remember, about a decade ago, I sat in a room saying, “Someday, just about all of our lights would be LED”, and I had the three largest lighting companies in the world at a conference all say, “That’s a nice young guy and I know they’ve got these really big ideas, but the lighting we have today is good enough. There’ll never be a reason to have LED lighting in all these other areas.” So, the fact that everyone is using it today is pretty satisfying, since I was told by everyone it would never happen.
Obviously, as an engineer, proving you can do something that others say you can’t is far more satisfying than the money, and it’s something that motivates you every day. Because if you’re in the innovation business, if you invent something today, you don’t stop and you have to do it again tomorrow for the next thing. There is always a better idea. So, you’ve got to be excited about the chase. Because every time you get to some milestone, it’s just about the next thing.
The idea behind the book “The Innovator’s Spirit” was, there’s lots of companies that talk about innovation, but what most of them miss is that they think of it as a process whereas it’s a mindset. When I retired and someone asked me how did we do it, I said, I don’t know, we just did it. So, I started reading a bunch of books about innovation and how other people did it, but what I realized is that most of it doesn’t work. They basically describe this idea of managing innovation, and fundamentally, innovation can’t be managed; it’s leadership. In fact, the better you are management, the worse you are innovation, because management is essentially controlling things to get a predictable outcome, while innovation is doing something that’s never been done before. Our point was, it’s about people, not process, it’s about a mindset, not a tool set. There are great tools, but the reason you have to start with your mindset is if you don’t get your mind in the right place, the tools don’t work.
Teachers telling their students that they’re not creative or innovative is a classic example of what’s wrong with experts, because experts know what’s not possible. One of the things you learn, and the people that are good at that is, they don’t really care what the experts thing. The way I did it is, I would actually interview people and generally not read their résumé. I wanted to know a few things about them. I generally want to know, what did they fail at and if they learned at it. If someone wasn’t good at describing things, they failed that and telling me what they learned, they weren’t going to like what we did every day, because that’s basically what happened. I usually ask them some crazy question. Like, my favorite question was, “How many barbers are there in the city of New York?” I asked them to figure it out while we sat there. They might go, who cares? It’s actually taken from a famous scientist named Enrico Fermi, who has something called the Fermi question; he helped invent nuclear fission. His point was that you can figure out almost anything by just using what you know and common sense. You would come up with an estimate that’s probably not far off. There are other things you could factor in like, a barber is probably not cutting hair all day, some times of the day they’re empty. So, there’s a utilization question. The point is that it wasn’t the answer.
I would be interviewing people as the CEO of the company and they could be in any job, and there were people that would sit there and be like, I don’t know how to do this. If someone was comfortable just giving an answer, we were going to keep having a conversation. If they struggled, if they were uncomfortable, I knew they weren’t going to like it. I didn’t care that you got an answer, I care that you weren’t afraid of taking on something unexpected and dealing with it, because honestly, that’s what happens every day. You’ve just exhibited a mindset that gave me an idea. If you can tell me about failure and really tell me something you learned, not that the worst thing you ever failed at is working too hard, because that’s baloney and you just ignore those people, that’s what I’m looking for. Then, the last thing I would do is, I would ask people at the end of the interview, tell me about the title. Typically, there would be some job title for it, and I said, we’re not sure we’re going to keep that title, what happens if we don’t call it a vice president? We’ll just call it something else, what do you think? I get one or two answers. Some people cared about their title, it’s pretty important. They’d say, it’s important to be respected and do my job. While some said, I don’t care what you call me, I just want to do the job. If someone cared about their title, I never hired them, ever. Because if you’re going to do something really hard, your title will not save you when the going gets tough. You better be self-confident about yourself, you better be empowered by you, not me.
The book gets a little bit into a lot of how you grow up affects your behaviors. Your behaviors for innovation are a function of what you believe. So, you can practice a behavior, but when times get tough, you’re going to act however you really believe. What we’ve got to get at is what do you believe below the surface which is things like, what’s your tolerance for risk, and much of that comes from life experiences. Are you comfortable taking risk or are you someone that learned that risk is something to be avoided? That’s actually a belief inside of some people, and they’re wired differently, and that comes from experiences. Because if you survive failure a bunch of times and realized you got to the other side, generally speaking, you’re going to have a higher risk tolerance than someone that’s never failed.
So, if your goal is to do something more predictable and to a more guaranteed outcome, absolutely, but my goal was to find people that could innovate. You are absolutely doing something of value and there’s a reason you want to take that approach, but if I need you to do something that no one’s ever done before, you can’t live within the boundaries. That’s why companies that pursue, like Six Sigma, are horrible at innovation. Six Sigma is about reducing variation to get to something that’s the same every time. Innovation is something that’s not even in the distribution to start with, you’ll never get there. You hear the term think outside the box, wrong term; you need people who believe that boundary conditions are a choice, and that there is no box. That’s what I was looking for, and there are some people that are actually wired that way that are really good at innovation.
For an individual that wants to become more creative, you’re going to probably think this is a pretty low-tech suggestion but you have to practice it. To give you an example, let’s take you have this idea that you have no idea if a customer is going to buy it. Put it out there anyways and survive the experience. You may not sell anything. So, this may not be financially the best choice, but if you do that a few times, what you’re going to discover is that you learned something you didn’t know, and that you would never have had that information if you hadn’t tried that idea. What you start to recognize is that knowledge and learning is more important than anything else. So, what I would say is, the best innovators see failure as learning and knowledge gathering, so that they are now more informed of something that no one could think of before. You literally have to practice it by putting yourself in situations.
Let me give you an example. Few years ago, my daughter was getting married. She wants me to go take a ballroom dancing lesson. I think this is the world’s worst idea, I’m not a dancer. But my wife looks at me and says, it’s your daughter, you got to go do this. I’m like, I really would like to do anything else, but I went. I have to say, I got to the other side of it, it wasn’t all that bad. I had a different perspective of what that risk was. I have to tell you, I was a whole lot more comfortable the night of her wedding because I had survived it, and I realized, I could screw up as bad as possible and I’m not going to die. It didn’t make me a much better dancer, it just made me more confident one. That’s the point.
I want to clarify, we have over 5000 patents but a very small percentage gets monetized. It’s one of the challenges, is the patent is the idea and the monetization is the creating value and solving a problem part. Once you have the patent, you got to get the customer in front of the product and you got to make them care about it. Then probably the bigger issue is, you don’t have a supply chain to get the product to them. One of things I learned in lighting is, you can have the world’s best LED lighting product, the channel had more to do with what you bought than the quality of the product. So, what you’ve got to find is access to the customer in a way they buy it. What could you do? You could try to go direct and tell the whole world you have this great product that they can try to buy it directly from you, you could probably do that but it won’t sell very much. Because most people’s decisions are not made by them. In lighting, we think we care about our lighting, yet a contractor actually buys the lighting for your house, you don’t buy it. So, you have to somehow get the channel to care enough, to make the product and promote it for you.
On the other end, you got to create a problem that customers are worried about. So, you should scare the shit out of people that something bad would happen if they don’t do something here, and I think if you create that tension, then you can create a market for it. Why did someone buy LED lighting in the end? Because they didn’t want to waste money on the old light bulbs, it was that simple. They didn’t actually buy it to save energy. We thought we were saving the planet when we started, come to find out most people do things that are better for themselves. In this case, they wanted to save money.
The book is available to pre-order today on Amazon, Barnes & Noble, and Indie Bound. Probably late-April early-May, it’ll be available in the bookstores. You can find out more about me and my writing at chuckswoboda.com. You can follow me on Twitter and Instagram @thechuckswoboda. If you want to hear more about some of the things I’m doing, I also have a podcast called Innovators on Tap in partnership with Marquette, where once a week, we bring on other innovators and I get into their mindset and understand how they think about it. So, we’d love to have you listen to us on Innovators on Tap, which you can find on Spotify, Apple, and all the great places.