How innovation works.
How does the innovation works, lessons from history to understand future.
“Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.” — Einstein
Einstein elegantly captured the dynamic tension between disorder and human capability that drives waves of innovative progress. At its core is the physics concept of entropy — the tendency for closed systems to move toward disorder, or chaos. As entropy increases, it creates difficulties and stresses on established human systems. But necessity is the mother of invention. When pressed by these challenges, humans tap into their innate capability for creative problem-solving, generating solutions and innovations that simplify, harmonize and reveal opportunity from difficulty.
This interplay between increasing entropy and human breakthroughs that reduce it has powered cycles of innovation throughout history. Chaos sparks human creativity into overdrive to find order. Progress is born from pandemonium. Technological shifts that once revolutionized business and society traced their origins to the human capacity to innovate amidst chaos.
As investors, we need to understand the dynamics of this entropy-innovation cycle and how it unfolds across waves of innovation. It offers insight into how today’s upheavals contain the seeds of tomorrow’s technological advances, profits and progress.
The Three Waves of Innovation
Technologists break innovation into three major historical waves, marked by technological shifts that disrupted and transformed virtually every sector:
- The Industrial Revolution (Mid 1700s-Early 1900s)-Triggered by the steam engine and railway networks, enabling mechanized production.
- The Technological Revolution (1950s-1990s)-Sparked by electronics and computing technology after WWII.
- The Digital Revolution (1990s-Present)-Built on internet and mobile networks enabling the explosion of information technology.
Each wave was powered by an entropy-innovation cycle with common dynamics:
- Turbulence Increased Entropy-Wars, economic crises and other disorders disrupted established systems, increasing uncertainty.
- Stress Sparked Breakthrough Innovations-Facing new difficulties, humans tapped their innate creativity to find solutions, simplifying chaos.
- Innovations Enabled Growth-These breakthroughs paved the way for new tech, infrastructure, products and business models that drove productivity and progress.
By tracing this cycle that unfolded across the three waves, we can understand how entropy and human ingenuity collide to drive technological shifts that transform societies.
The Industrial Revolution — How Steam Engines Tamed 18th Century Chaos
The end of the 18th century was a period of extreme entropy and upheaval across Europe. The predominant agrarian economy depended on inconsistent crop yields, frequent famines and rudimentary transport. This difficulty sparked the creativity of innovators who harnessed steam power.
James Watt’s steam engine boosted productivity in manufacturing and James Watts’ railway networks enabled efficient goods transport. This simplified production and transport chaos, unlocking unprecedented scale, productivity and connectivity.
The steam-coal powered machines of the Industrial Revolution reduced entropy across sectors. Textile mills mechanized clothing production. Innovations from metallurgy to machine tools enabled mass production of everything from bicycles to bridges. New banking models financed expansion.
The industrial age powered by steam tamed agrarian age chaos. It paved the way for urbanization, global trade and the factory model that still shapes business.
The Tech Revolution — How WWII Chaos Ignited Electronics and Computing
The first half of the 20th century was plagued by extreme entropy — depression, world wars — that disrupted economies and societies globally. But under pressure, 20th century scientists and engineers tapped innate creativity to deliver innovations that sparked the Technological Revolution.
Facing an existential threat from fascism, governments channeled massive funds into developing complex next-gen military technologies around electronics, encryption, aviation, vehicles and semiconductors. Scientists like Alan Turing broke ground by creating early computing machines to crack encryption. We see how the war effort forced breakthrough innovation.
Post WWII, firms commercialized these formerly military-only innovations for mass consumer and business usage, launching the era of electronics and computing. The wartime origins of GPS, jet engines, synthetic rubber, and so much more trace back to chaos catalyzing human ingenuity.
The spinoffs of wartime R&D into the economy boosted productivity, connectivity and convenience — reducing entropy across sectors from transport to healthcare. Electronics firms like IBM, HP and Apple became behemoths by driving adoption. VCs flocked to high-tech, spotting opportunity in semiconductors and computing chaos tamers like Microsoft and Intel.
Case Study: WWII Turmoil Powers Advances in Organic Chemistry
One fascinating microcosm of WWII turmoil sparking human innovation is the dynamics of innovation in chemistry. With imports disrupted, German chemists faced immense difficulty as key compounds were suddenly unavailable. But pressed by this challenge, German labs made breakthrough advances in synthetics.
A pivotal innovation was Fritz Haber’s process for synthesizing ammonia, which requires abundant hydrogen. Wartime hydrogen shortages threatened production of nitrogen for explosives and fertilizers. So German scientist Carl Bosch pioneered a process to produce hydrogen from coal. This innovation powered mass synthetic ammonia production, enabling munitions and food supplies.
Another vital innovation was IG Farben chemist Fritz Haber Nobel Prize winning discovery of the process to synthesize urea. Natural urea sources from urine and guano couldn’t meet wartime demand. Haber urea synthesis solved the supply crisis.
We clearly see how chemical science advanced under pressure from WWII chaos. Post-war, the innovations continued powering revolutions in materials, medicines, agriculture and more. Chaos drove human breakthroughs.
The Digital Revolution — How Mobile Computing Tamed Information Overload
The internet took off in the 1990s, as computing power and networks exponentially increased information and connectivity. While transformative, it also increased entropy. People struggled to make sense of avalanching data and tech complexity. Difficulty drove innovation.
Mobility was the simplifying solution. Laptops untethered computing power from desks, reducing chaos. The 2007 iPhone took it further, delivering a handheld computer-phone with an intuitive interface that tapped humanity’s innate yearning for convenience, control and connection.
Apple’s ecosystem of elegantly designed devices, operating systems and app marketplaces enabled customizable access to information and services anywhere. Overnight, tasks like navigation, photography, banking, ride-hailing and more were squeezed into user-friendly handheld tools, reducing entropy.
The mobile platform pioneered by iPhones rapidly simplified life and business amidst internet age chaos. As investors, VCs spotted this early, pouring funds into mobile startups like Android, Uber, Instagram and thousands more building on smartphone capabilities. Many minted billion dollar fortunes by leveraging mobility to tame digital disorder.
Chaos into Fortune — Where to Look Next
We remain early in the Digital Revolution as networks, AI, crypto, VR and quantum drive relentless information growth and complexity. Meanwhile climate change, pandemics, instability, inequality further increase entropy. Difficulty abounds.
But remember — friction precipitates traction. Today’s chaos contains the seeds of tomorrow’s innovations to tame disorder and power the 4th wave of progress.
With an investor’s eye on the entropy-innovation cycle, we can spot the nextNaughton big opportunities. Tune your radar to entrepreneurs using technology to simplify complex modern challenges around:
- Clean Tech — Taming climate and sustainability chaos
- Health Tech — Simplifying treatments, optimizing wellness
- Fintech/Crypto — Streamlining payments, banking, assets
- Future of Work — Remote collaboration, productivity tech
- Smart Cities — Optimized energy, transit and living
- Education — Making learning adaptive, engaging, accessible
From steam engines to smartphones, history shows human creativity activates into overdrive when pressed by entropy. Difficulty driven breakthroughs pave the way for technological shifts that transform business and society. Progress is born from panic. By anticipating the innovation cycle, we can turn chaos into fortunes.
