The Natural System of Change

Certain species develop cooperation that maximizes the success of the collective system.

We live in a world today where we are more empowered than ever. With global connectivity, access to information, democratization, and the early signs to barrier- less resources, we have been embolden to make a contribution to the world in a way that progresses it in the right direction.

As a venture capitalist, my firm is focused on technologies that can systemically solve our biggest global challenges. Our investment thesis is based on the premise that our biggest global challenges also possess the biggest commercial opportunity. We believe that our role, and our resources, has the power to catalyze the change we want see in the world. In understanding this, we start to realize the important role a capital provider has in a larger system of stakeholders outside of its immediate sphere. How capital is committed can influence how, and what, certain innovations are created (whether or not certain innovators are given the full permission to dare) and ultimately those innovations impact the way our world works (amongst each other and our environment). It becomes very apparent that to make the change we want to see happen in the world, we must understand the complex systems of the world we live in.

Discovery In An Unusual Place

The lifecycle stages of an innovation

In my previous and current work with technology, we understand that innovations have a common lifecycle that evolves at different rates across its stages of maturity. Technologies and innovation typically go through a startup-stage that is typically flat and incremental, and then, when it finally crosses the chasms toward product-market fit, its scales with growth. The technology eventually matures by capturing market share, and it starts to sustain itself. Relating this to what David had taught me, I started to realize that the lifecycle that technologies experience are very similar to the dynamics of a biological lifecycle. In the stages where species innovate, they complete it through speciation. In speciation, species are isolated in way that through time, they are able to diverge and innovate into unique species. That is why isolated islands like Madagascar and the Galapagos produce unique species like the Dodo (extinct due to introduction of invasive humans) and Darwin’s finches. The same characteristics of this speciation is liken to the properties needed to fully ideate and incubate technologies. For a period of time, the right environment and the abundance of resources are needed to incubate in these startup stages and give these technologies the permission to innovate. Then, in the growth stages as a technology begins to scale commercialization, the same properties existed for an ecosystem’s adaptive radiation. In adaptive radiation species start to diversify in a way that it fills the niches in the ecosystem. This was the same for the properties that occurred in technology; as the rule is, the more complex a space is, it forces specialization in order to remain competitive. Ultimately, both the lifecycles of technology and biology reach a point of maturity that wait for the next wave of change.

Similar traits between biological lifecycles share properties in the lifecycles of technology.

Through the interdisciplinary reconciliation of these two different métier, it is realized that the reason why the properties of the lifecycles are similar is because they are the ebbs and flows, the tug and pull, of systems that rely on interconnected and interdependent stakeholders. In both biology and in innovation, the properties and progress of these creations, were based on the natural exchange that occurs between these stakeholders and across their system. It was obvious, now more than ever, that we do not live in a flat or linear world, but we live in a world that is complex and dynamic, a world that is interconnected on so many levels by these systems. Every one of these stakeholders in a system were both a product of the collective pressures that were being placed on it, as well as a contributor to the environment creating those collective pressures. These systems span across our world and make up our economic systems and the way we create commerce and exchange across the globe. It spans across our religious and spiritual movements and has illustrated how systems of religion have created unity in belief in a way that empowers positive stewardship. We have seen these properties in the system of government that creates policy in the best interest of its citizen. But this world is complex in that these systems are interconnected, with different overlaps, on different levels. Water and food scarcity, homelessness, environmental sustainability, geopolitical conflict, and migration are all adverse examples of the dynamics of systems. These are not local challenges that stand on their own, but they are globally related where the effect of one can create a cascade that systemically impacts all stakeholders on many different levels.

Systems span across our world and make up our economic, political, and religious systems. These same systems are what make our challenges not local that stand on their own, but they are globally related where the effect of one can create a cascade that systemically impacts all stakeholders on many different levels.

Systems and Eusociality

Every stakeholder of a system is a receiver and a contributor of that system.

Biology and ecology illustrate the dynamics of interconnected systems very well. We have seen that in a biological ecosystem these systems are composed of species that are interdependent on the direct or indirect value exchanged amongst one another. With the absence, or the removal, of one of these species, it would completely change the dynamic and its value exchange across the system. That is why being conscious about how we become stewards of our environment may not seem to have a direct impact on you and your loved ones, but your actions leave a lasting effect on the system you are apart of, and you will eventually feel the impact of it in some fashion. We have seen how systems find balance through the symbiosis between different species like with the reintroduction of wolves back into the ecosystem of Yellowstone National Park that brought back a harmonic balance. Before the reintroduction of wolves, elk populations had grown without the regulation of a predator to keep it in balance. Because of the large elk populations without obvious direct predators, they ended up decimating much of the flora species and willow. Wolves were reintroduced back into the Yellowstone ecosystem, and in effect balanced the elk population in way that allow vegetation and willow to in turn grow without the over-grazing of the elk. The simple introduction of this wolf species caused a trophic cascade that ultimately changed the dynamics where the vegetation created the opportunity for beavers to return back to its rivers, which in turn changed the hydrology of the rivers, and even affected the system in a way that created a sustainable home for other species like eagles, ravens, bears, coyotes, and other interconnected species.

Certain species maximize the success of the collective through cooperation.

Our world is composed of complex systems that occur on many different levels. So even looking at the relationships of complex systems on a more granular level between the same species, we see certain species that develop a symbiosis of cooperation. Certain species like ants, develop the properties to cooperate within the system of their own kind. These species develop this characteristic of cooperation because they intuitively know that through this altruism they can maximize their chances of success. Specifically, sister ants that share half of each other’s genes know that if they give up their reproductive prerogative in support of a single queen ant, they can mathematically increase their individual and collective probability of success. Through this cooperation these ant species become a super-organism that work in concert and in sync and end up becoming the most resilient species in the history of our known world.

Specialization and a division of labor occurs in cooperation, which maximizes the success of the collective.

Through this cooperation and altruism within the ant species, specialization occurs. A division of labor in this system yields better results for the greater collective when each individual specializes in a specific role. Ants specialize into major and minor ants, soldier and worker ants, and through chemo-communications (pheromones) each one of these specialized contributors aligns in a way that maximizes the productivity and viability of the whole colony.

Atta Cepholote leaf-cutter ants harvest leaves that are used to create a unique fungi that is used for the colony’s nourishment.
Ant species develop trophobiosis where protection against predators are exchanged for a sugary secretion generated by sap-eaters. The sugary secretion is a manna for ants.

Again, systems are complex on different levels and with different overlaps. Within certain species, like ants, they develop a level of symbiosis called trophobiosis. Derived from the Greek word “trohpo”, meaning “nourishment”, trophobiosis is a symbiotic relationship between different species in exchange of nourishment. In species of leaf-cutter ants leaves are gathered amongst it its river of workers and they are aggregated in chambers within its colony. Within these chambers, these leaves will be compiled in a way that develops a white fungus that is used as manna for the colony. This particular type of fungus only exists in this relationship with leaf-cutter ants and solely relies on its relationship with these ants; in many ways a form of myrmecological agriculture. Another form of cooperation and trophobiosis amongst these species and other species occurs with other insects like caterpillars and aphids. These insects are sap-eaters and their bodies develop a sugary secretion through its natural digestive process that is nourishing to ants. In this trophobiosis, these sap-eaters retain this sugary manna, reserved for their trophoiont in exchange for protection from other predators like wasps.

Through food and species domestication, surplus of calories created specialization. More complex economic, religious, and government systems were created to support the collective.

What is interesting, is when studying the properties and characteristics of cooperation and altruism of species like leaf-cutter ants, you understand humans as a species possess these same properties. Over time, humans have developed the cooperation that has allowed its species to work together to maximize its survivability and its success. The definition of this cooperation is called eusociality. eusociality in sociobiology is in the highest animal sociality in which through its cooperation they are able to maximize their gene fitness and we see this illustrated in the human species as they transition from hunter-gathers to establish civilizations. Very similarly to what we see in leaf-cutter ants that collect, store, and harvest leaves for a particular fungi that feeds the colony, through eusociality and cooperation, humans began to domesticate food in way that created consistency and certainty in food supply. Like in the trohpobiosis between ants and sap-eaters that provided sugary manna, humans domesticated species to maximize nourishment without the unknowns of having to hunt. This type of eusocial cooperation was the product of the surplus of calories that continued to create this specialization and division of labor between laborers and bureaucrats that allowed civilizations to continue to flourish. Just like the dynamics and cooperation found in other eusocial species (like ants) these civilizations developed more complexity that supported the synchronization of larger civilizations. The only difference that sets humans and Hymenoptera apart in degrees of eusocialty was the invention of language and writing. With the evolutionary development of the limbic system, combined with the invention of writing and language, humans were able to develop exponentially as civilization. Humans were able to communicate and coordinate at larger distances, and humans were able to retain learnings that converted into knowledge, that could also be shared, accelerating evolutionary progress not only through its genes in natural selection, but through the sharing of knowledge that had been collected over generations. The dynamics of human civilizations as a species have developed multiple layers of complexities because of this exponential trajectory, and because of growing density and complexity of these systems that have resulted in the creation of our economic, religious, and governmental systems. It is ever so clear that humans as a species, like other eusocial species, live in a world of complex systems that impact many different interconnected stakeholders. We have been the creators of these systems (though at times subconsciously), and the complexity of these systems are what allow us to be cooperative with each other in a way that increases the success for all of us. We understand that these systems are necessary for our survival and success as a collective and that is why these systems are what have made us advance as a species, but also these systems are the reason why our challenges touch us all (not just a select few). That is why it is important for us to be conscious of our contribution in a larger system to make the systemic change that will benefit us all. We are all stakeholders in a system that spans across our direct inter-species relationships and the environment that we live in. We are products of the collective pressures of our environment; we adapt, change, and behave in certain ways depending on these pressures. At the same time, we are contributors to those collective pressures; what we contribute (or not contribute), or even the type of contribution we make, effects the environment and the world that facilitate the dynamics of how we operate. You start to realize you play an important role in this world. No matter how big or small.

Creating Systems

Fisker Motors. A beautiful car that failed to create a value network.

Looking at the battle between Fisker Motors and Tesla (some would argue there was very little fight here), each of these electric car manufactures set out to put in motion a revolution that illustrated that drivers did not have to sacrifice in design or performance when it came to adopting an electric car. Henirk Fisker was previously the designer at Aston Martin, and created a beautifully designed car with all the features any car enthusiast’s heart would desire. But for some reason, Fisker Motors went out of business and Tesla ended up leading the charge around electric car transportation. The difference between the two was that Fisker was focused on developing very beautifully designed product that had one stakeholder in mind: the consumer. Fisker had anticipated that it would use stakeholders and resources from an incumbent value network to manufacture and distribute the products and realized that it could not be viable. Tesla on the other hand not only created an electric car to fulfill consumer needs, but they created a value network. They realized that for the economics to work across the system, they could not rely on a third-party to procure materials, manufacture, and produce the lithium batteries. In that respect, Tesla decided to own that manufacturing process by developing the Gigfactory. With the ownership of this part of the value network they owned the lithium production and they created the economies of scale that benefit all the stakeholders in the value network. Tesla also knew that the incumbent system had an inefficiency with its dealership model, so instead of going through the old system, Tesla circumvented the dealership and went direct to consumer. The changes that Tesla put in place in the value network created a new system that made it viable, but also made it asymmetrical to its competition. For Tesla, innovating across the value network meant the difference between creating an interesting idea, and revolutionizing a new category.

System Motivations

Innovation requires a broader view to align the different stakeholders within a value network.

Creating system innovation is the difference between incrementally sophisticating on top of existing creations and putting in motion new category creation. This is more easily said than done, but nature has a way of do this intuitively through its own adaptation and phenotypic plasticity. Being conscious of the value created across a network of interdependent stakeholders requires one to broaden their view of outside of their focus of execution. First-mover advantage, market potential, and competitive advantage is not sufficient to creating value across the whole value network. One must be mindful of the collective pressures of the system as well as the value created for each stakeholder in its system. There is co-innovation risk that illustrates an innovation that relies on the sophistication of another innovation. An innovation that relies on the sophistication of solar photovoltaic efficiency and output may a determining factor of why there is a gap in the value network that affects its viability. We saw Tesla face a similar challenge in its lithium production, and they took it upon themselves to own this process to have a hand on the dial of its sophistication. There is also co-adoption risk that is associated with the value network in that certain indirect, but essential, stakeholders may have to have proper motivation for the value network to be complete. We see that fast-paced innovations have the propensity to progress exponentially, where regulation and law that is based on precedent progresses linearly. In these misalignments, co-adoption risk for disruptive technologies have co-adoption risk with regulators or policy makers. The alignment of all these stakeholders, among the unique dynamics of a system, is what makes systemic change possible. Each one of these stakeholders have to derive and provide value to the complete system in a way that it is motivated to be a contributor and a receiver of the system.

Innovation is diffused across different segments based on the cost benefit ratio of adoption.

Looking at how innovation is diffused across markets, the same diffusion happens on another level between individual stakeholders. Again, systems are complex in that their trajectory is dynamic, where every stakeholder has their own maturity and lifecycle, and the collective systems have their own dynamics. Creating alignment between them all is part of the art and the science; and in many cases what occurs on accident. Innovation is diffused in a way where different segments of stakeholders adopt at different times. There are early stakeholders that adopt near the introduction of a creation, and they are called Innovators and Early Adopters. In the early stages of a creation, it is common that the solutions may be incomplete and imperfect. These early stakeholders tend to have the economic means to embrace the imperfections at these early stages (e.g. think high-net worth, government agencies, or incumbent firms). As these innovations are iterated and sophisticated, they tend to reach economies of scale and abundance that starts to become more accessible to other segments of stakeholders. Through iteration, its imperfections are eliminated and its solution sophisticates to a point where Early and Late Majority can adopt. Once A new solution is diffused throughout the market and is heavily abundant to the point that old solutions are no longer useful, the collective pressures incentive the Laggard to finally adopt. When you look at the way that innovation is diffused across these different segments of stakeholders, the motivation for adoption is not based on desire alone, but it based on the economics that effect their capacity and their motivation. Each one of these stakeholders and their motivation to adopt was affected by the abundance or scarcity of their capacity to embrace imperfect and the abundance or scarcity of the solution. What we start to realize is that something qualitative like motivation is tied to something quantitative like economics. The economics, the abundance and scarcity, effect the motivation of cooperation and alignment needed to innovation to occur. Certain challenges like crime, are not only products of motivation, where we should be telling people to change their attitude, but they are deeper products of abundance or scarcity. The scarcity or abundance of resources can effect the way people behave (e.g. crime, child soldiers, sex-trafficking, etc). Like Maslow Hierarchy of needs, one can only self-actualize once the bottom need states of food, shelter, and survival are met. The change and innovation we create can only be actualized on the foundation of the economic levers that incentivize this alignment.

There is a mathematical formula that evolutionary biologist W.D. Hamilton created that illustrates altruism amongst kin selection in biology. The formula rb — c > 0 illustrates the degree of probability that certain kin will be motivated to become altruistic. The formula subtracts the potential cost of cooperation against the product of its relatedness and benefit. In the formula “r” represents the proportion of genes that are shared, “b” represents how many more offspring can be produced, and “c” is how much few offspring are produced. Very similar to the eusocialty in ants and other cooperative species, these ants were motivated by the probability of increasing its gene fitness through cooperation. Sister ants gave up their reproductive prerogative to support a queen ant in that the benefit of that cooperation were degrees larger than not cooperating.

When you look at value networks in innovation we had always assessed an innovation based on its consumer solution. And as we know from what we read in the previous paragraphs, the consumer is only one stakeholder in a larger system of interdependent stakeholders. One would assess what is the total addressable market, the competitive advantages, and how does this provide better value than the alternatives. The old analysis would measure the viability of the innovation based on the cost benefit ratio of its consumer solution. Like Hamilton’s formula that illustrated the motivation for altruism based on the cost benefit ratio, stakeholders that adopt a diffusing innovation are motivated by the underlying economic levers that make up its cost benefit ratio of adoption. Each one of these stakeholders within a value network may have different motivations for adopting based on the costs and benefits specifically related to them, but they all have the propensity to align when the benefit ratio reaches a degree that incentivizes them into cooperation. The better measure of the viability of an innovation is not illustrated based on the cost benefit ratio for the consumer stakeholder alone, but it is based on the costs benefit ratio amongst every stakeholder across the value network. The total potential benefit of the value network against the total cost of the value network better illustrates if there is alignment in the network for systemic change to occur. Studying cooperation in biology, you understand that there is a compelling parallel between economics and the sciences, the qualitative and the quantitative. We start to get a better picture of the complexities of systems that make up the world we live in, and more important we become more conscious of the value we contribute to these systems that affect its viability and its progress. Motivation that occurs so intuitively in nature is based on the economic levers that are put in place. We have the ability to catalyze the change we want to see happen if we understand and become more intentional about how we put in place the economic levers that effect the alignment of these dynamic systems.

Systemic Change

I do things. And occasionally stuff. www.kyle-ballarta.com/

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