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November 30, 2011

Fast Cycle Experimentation in Companies and Countries

Techcrunch - At the 2011 Techonomy conference, Intuit co-founder Scott Cook was pretty radical in his economic and political analysis. Arguing that all companies need to turn themselves upside down, he told me that it’s the young technology entrepreneur – the Zuckerberg or the Shawn Fanning – who is most skilled at navigating today’s ever-turbulent economic waters. The video of the interview is below.

It’s in his political analysis that Cook really went nuclear. Arguing that “if you pay peanuts, you get monkeys”, he made the case for the Singapore or China model of economic growth, where great (and old) leaders have been able to reinvent their countries. In China, for example, Cook uses the example of Deng Xiaoping’s establishment of “Special Economic Zones” such as in Shenzhen that, he says, resulted in 300 million Chinese people being liberated from “grinding poverty”.




Rather than the boss being the caesar, who makes the decisions for everything, he said how can you build a system so the best ideas prove themselves? What that does is in franchises, the most junior people in a company. Cause if you make decisions on judgement, it's the highest paid judgement that wins.

If you make decisions on experiment, things the best idea that can win. Often those are from the youngest, most junior people on the company. That's just one change that we're seeing today happen company after company. Where have you seen that most actively experimented with, what companies are sufficiently democratizing themselves to be paragons of what you're talking about.

In countries you need to enable affordable and rapid experimentation. Experimentation in cities or in states.


The idea of experimenting with governance was also advocated by Patri Friedman.
Floating chains of micro-countries, each little colonies in the vast Petri dish of the sea, and each an experiment in a new form of government.

Land based charter cities (like new laws passed in Honduras) will enable more experimentation with governance to find ways to achieve maximum economic efficiency.

Microcountries are really more accurately thought of as city states.

In companies you need to empower people, enable affordable and rapid experimentation. Find ways to as rapidly as possible what will not work and what needs to be done to fix things.




One sector which hasn't run experiments in the U.S., so hasn't learned by comparing alternate policies in an AB task the way businesses do, the way science does. One sector that hasn't done that is the government. Can you actually set government policy by experiment? I think you can, and one country has.

And that's China. And the story I tell is when Deng Xiaoping took over China. Absolute authority, he could do whatever he wanted, but he knew the country was bankrupting. Starving, grinding poverty that could not generate the jobs to feed themselves. So he did many things, but one he did was experiment.

One experiment was he put a fence around Shenzhen and ran the area Shenzhen under different economic rules. They ran under free market rules, while the rest of the country was locked in a communist economic system. There's an AB test. They watch the test and the Shenzhen economy exploded. Foreign investment came in.

Jobs, great jobs. That experiment proved the value of moving to that system. When they then expanded the results of that test, the Chinese economic miracle began. Since then, over 300 million people have been liberated from grinding poverty, and now lead comfortable middle class lives and that's the greatest anti-poverty program ever in world history and it was the result of an experiment.



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