Good afternoon, good evening, and good morning, wherever you're viewing from. Welcome to the next episode of the XSCALE series, part of our Meridian Point broadcast. In this one, we're going to be covering principles eleven and twelve of both permaculture and ecosystem thinking.
If you were with us for the series, we've spent about 6 months on these principles. We started around 6 months ago and covered a set of principles each month. Today, we're on the last two. I'm going to miss talking about these because they are quite profound. Permaculture, especially, has taught me a lot. I don't know about you, Glenn, but I've learned so much about permaculture principles. It's gotten me really interested in learning even more about it.
Without further ado, let's talk about principles eleven and twelve. We'll start with permaculture principle eleven, which says, "Use edges and value the marginal." A subheading adds, "Don't think you're on the right track just because it's a well-beaten path." That sounds like something you'd get in a Chinese fortune cookie. What do you think, Glenn?
Glenn: I agree, and I like this one. It resonates with me. Can you describe it a little bit in your own words? What does "use edges and value the marginal" mean to you?
Kumar: Following a well-beaten path, particularly if you're a business, is just engaging in a commodity market. Everybody's there, beating each other up, trying to save a few pennies. That's not where growth or profit is. You need to get off the beaten path. The image that comes to mind is an ecosystem as a field with all sorts of things interacting. The edges are where you want to go. That's where you might find an unserved niche. In terms of growing the ecosystem, you have to look on the periphery for things that aren't being serviced.
What are some examples of business applications of this principle? And you can't use Apple.
Glenn: Can I use Tesla?
Kumar: Yes, you can use Tesla.
Glenn: I'm quite intrigued by the work Tesla is doing with the Optimus robot. Current robotics are highly programmed for specific tasks, sometimes to the thousandths of an inch or millimeter. Tesla's cars have a general-purpose engine that sees objects, other cars, children, road signs, and responds in real time. They're going to take that technology and put it into their humanoid robot for real-time sensing. There's a video of the robot picking up an egg, which requires precision and delicacy, and placing it in the center of a container. This is a completely underserved niche and a potentially massive market, which Tesla figures will be bigger than the car market.
Kumar: I agree. These robots will likely be used in Tesla's factory version 3 that they are designing now. It all grew out of an idea in Elon Musk's head. If you can cast an entire half of the vehicle and slam them together like toy cars, it would result in fewer parts, fewer welds, higher quality, and lower production costs. The robots can then do the fine work of welding and installing seats. It may put some humans out of work but could also create new jobs.
Another example in line with the permaculture principle of using edges and valuing the marginal is a company called M-Pesa. They're a money-sending financial app, similar to Venmo, primarily serving underserved populations in Africa - people without bank accounts. Now they can use this app on their mobile devices to send and receive money, transact without a bank account. It's being used by 50 million people around the world, mostly in Africa. It's an example of how ecosystem thinking and the principle of capturing underserved markets and spaces between market segments creates opportunities for new growth and efficiency, just like in permaculture and natural ecosystems. The intersections are fertile ground for new opportunities in both nature and business.
Glenn: It's interesting that this is happening in Africa or other less-developed countries. We have a chance to do it all over again. We don't need banks, as M-Pesa has proven. I'm struck by something else from the developing world. Traditionally, we built phone networks, but they're skipping that completely and going straight to cellular. And now, in the 2020s, why not go straight to Starlink? Skip even satellite networks.
Kumar: That's a good point. AI is another exploding niche that's connecting different ecosystems and value streams through the power of artificial intelligence. Who knows where it's going to lead? But that's a topic for another conversation.
Some other examples of this ecosystem principle are Uber and Turo. Turo provides car owners with the ability to rent their vehicle to anyone. If your car is only used on weekends, as many people now work from home, it's an underutilized resource. You've spent a lot of money buying the vehicle, it depreciates every year, and you have insurance to pay. Why not rent it out? It's a niche between the car rental industry and ride-sharing services like Uber. You can get a sports car, a 20-year-old small car, or anything in between from Turo. It's like Airbnb for cars.
Of course, this is not an ad for M-Pesa, Turo, or Tesla. These are just examples of how this principle works in the real world - the ecosystem thinking principle of capturing underserved markets and spaces between market segments. That's what innovative companies are constantly trying to figure out: what can they do that differentiates them from anyone else, where no one is currently playing, where people haven't even thought a market could exist? When they do it, the market emerges, and people wonder why they never thought of it before.
This principle existed before permaculture, but permaculture has drawn inspiration from it. Anything to add, or shall we move on to permaculture principle twelve?
Glenn: I'll just throw in two quick examples. Uber's founders were sitting in France, waiting for a taxi they couldn't get, and that's when they thought of the idea for Uber. The other one we mentioned earlier was SpaceX with their reusable rockets. Now that they're out there, why would anybody not reuse a rocket? Yet for 50 years, we never did. Ten years ago, nobody had done it before.
Kumar: It's interesting you say that. I was talking to a gentleman this afternoon who used to work for the Apollo program at NASA as a rocket scientist. He said that later in his career, when SpaceX came around, NASA scoffed at the idea of a reusable rocket, thinking it would never work or happen. But here we are. I don't know when the first reusable rocket was launched and proven, but it's routine now. Falcon 9s take off every week, sometimes multiple times a week, and land safely. Many of these rockets have been used 10, 15, 20 times. I don't know their lifespan or how many launches they can withstand before being scrapped or recycled, but it's amazing how far rocket technology has come. Now it's the standard, and other companies are trying to do the same, though I don't think anyone else is successfully reusing rockets yet.
Glenn: You're throwing away serious money if you don't reuse the rocket. The cost of sending a pound to space has dropped dramatically as a result of reusing rockets. You have to replace fuel and everything, but it has a dramatic effect on costs.
Kumar: Let's move on to principle twelve, which is a little simpler for most of us to understand. Permaculture principle twelve says, "Creatively use and respond to change." The subheading, which I like, states, "Vision is not seeing things as they are, but as they will be." That's almost Yoda-like, except you have to change the word order a bit. What's your interpretation of this, Glenn?
Glenn: As a Canadian, we're into hockey, and there's a quote from Wayne Gretzky: "I don't skate to where the puck is, but where it's going to be." There's a principle in agile development: "Welcome change in requirements, even late in the development cycle of a product." That's important and key. Don't push back because you're almost finished and don't want to make changes.
But what we don't do is adapt organizational change. We stick with the same organizational structure. I'm getting into the ecosystem principle here, but that really resonates with me. We allow change only on the periphery. That's not enough. You need to welcome change up and down, all across the ecosystem.
Kumar: I see what you're getting at, and I totally agree. One similarity between these permaculture and ecosystem principles - let me read the ecosystem principle as well: "Evolve to embrace change; continuously adapt your organization structures to changing market conditions and opportunities for new growth." It's what you were talking about, Glenn. Apply ecosystem or systems thinking to how your organization is structured so that it's more nimble, resilient, adaptable, and able to change in the face of whatever is happening in the market.
Natural systems are constantly evolving, and we're causing a lot of that evolution, maybe stressing the ability of natural systems to adapt to the changes we are responsible for to a large extent. But that's another topic for another day.
I would also say that both of these principles link observing systems as a whole. As humans, we understand the natural environment much better than we did 50 or 100 years ago. It hasn't stopped us from doing what we do, but at least we understand it better. That kind of thinking has enabled us to structure organizations to better respond to those types of changes. Not always, as many organizations are stuck in old ways, but the ones that are able to adapt can thrive.
You have a pensive look, Glenn.
Glenn: I think you're making an interesting point. Ecosystems are very resilient, powerful, and adaptable up to a point. Beyond that point, they will collapse, and we see ecosystems in the natural world collapsing today. I submit that this is also true of organizations. They can take a certain amount of change and be resilient if organized as an ecosystem, but if there's too much change, even an organization will collapse.
Kumar: I wasn't consciously thinking that, but subconsciously, it's my understanding that there is a breaking point for every system. Have we reached that in the natural world we live in? Scientists don't know. They're saying it could be 10 or 50 years before ocean currents stop and things go haywire. We are not on a good path there.
But businesses and organizations are the same way. There's a breaking point where, whatever adaptability and resilience they have to adapt to changing market conditions, when stressed, if those organizations don't adapt or change fast enough, they will break. The idea is to build enough resilience within our organizational structures so that we don't break but are able to adapt and survive.
Glenn: There's this notion of self-organizing teams, particularly with agile practitioners. But they're kind of like the leaves of the organizational tree. What we need is for the nodes up from the teams to also embrace change, adapt, pivot, self-organize, and possibly morph the organization into a completely new structure in that particular branch. That's really helpful when you have these broad, systemic market changes, and that's where a lot of organizations have an opportunity to do better.
Kumar: Some real-world examples, Netflix is a great one, adapting from mailing DVDs to customers to pioneering the streaming industry. They exploited a niche between business ecosystems. Blockbuster was the reigning king - you had to go rent a DVD, take it home, watch it, and if you didn't return it in time, a lot of Blockbuster's revenue came from late fees. Netflix said, "We don't care. Keep it as long as you want, but you can only get 3 DVDs a month." That basically killed Blockbuster's revenue model. People thought, "I can keep this, watch it again and again, for a month, two months, three months? Awesome!" You paid 5 bucks a month, but that's how Netflix got started.
You would have thought streaming would wipe out Netflix, but they pivoted and are still the king of streaming. Interestingly, they maintained their profitable DVD business until recently. They resized and pivoted, not putting as many resources into it, but it was still profitable until very recently.
Glenn: I was one of those people who still got DVDs in the mail. There's something nice about getting the movie in the mail, opening it up, the excitement of having something new to watch, popping it into the DVD player, and sitting down to watch a movie. It's different from serving it up from the internet and choosing a movie. The choice is already made with the DVD. It's in your mailbox, so you don't have to choose, just hit play.
Kumar: I wonder if there are others like me who would like that back. Another thing with DVD rental is you can get literally anything. All Netflix has to do is buy the DVD. They're more restricted on what they can stream.
Any other business examples you can think of, Glenn?
Glenn: Amazon. That's a perfect example.
Kumar: Amazon originally started as a book seller. It was an obvious step to branch out into movies and other media, but they went all out and now sell absolutely anything. They let other people sell stuff on their site through the Amazon marketplace and even let people store products in their warehouses for Amazon to deliver, with free delivery.
Amazon is a great example here. They developed a large computer infrastructure and had to grow quickly. They did it successfully. Then the folks behind it went to Jeff Bezos and said, "Why don't we make this a general service and rent nodes to everybody?" The result is Amazon Web Services, which at various points has made more money than the Amazon store itself. It's a massive success and shows creative thinking, thinking out of the box, and having open-minded management that allows you to diversify. It's been phenomenal.
Glenn: Amazon exemplifies this principle as well as any company I can think of - evolve to embrace change, continuously adapt your organization structures to changing market conditions and opportunities for new growth. I can't think of a better example than Amazon. AWS, Amazon in the cloud business, and now they're the biggest cloud provider in the entire world. It's mind-boggling.
Kumar: There are likely plenty of examples of companies that have adopted and thrived over the past couple of decades. One that comes to mind that people might not think of is Domino's Pizza. They were created 20-30 years ago, and their whole premise was cheap, fast pizza close to college campuses so college kids could phone in and get a hot, fresh, tasty pizza delivered. For college kids that are half-drunk, maybe it was tasty.
That core reason for being never changed over the years, except that technology did. Now you can order on your phone and get it delivered. You don't even have to order - you can have your order pre-determined in the Domino's app and just press a button when you get home, and your pizza is there a few minutes after you are. Dinner served.
The formula worked and still works today. I wouldn't consider it good pizza, but if you just want to fill your belly, they have been very successful over the last 20 years in adapting to changing market conditions, trends, and so on to still serve a market and take advantage of it.
Glenn: I hadn't thought of pizza delivery as an example, but things have certainly changed. There are examples of companies that did not change, like Nokia and Kodak. This is serious stuff. When things change, you have to respond. If you fight it and try to hold on to what you had before, it's not going to end well.
Kumar: I think we have a wrap. We're about 20-some minutes in, and we try to keep these to around that length. This is a good time to stop. These two principles are fairly easy to understand, and there are certainly plenty of examples of companies out there that follow them. Maybe they don't know these specific principles, but they operate this way.
The whole idea behind the 12 ecosystem principles, which I'll include a link to in the show notes, is to think about how your organization is structured. If any of these principles don't apply, consider what it would take to apply this type of thinking to your organization and improve it - have it run better, work better, be more adaptable and resilient. These things are to help companies survive the changes we are seeing in today's world, changes that are coming faster, quicker, unanticipated, and forcing us to be more and more adaptable.
Any parting thoughts, Glenn, as we close out this part of our series?
Glenn: I would say not just survive, but thrive. This era of disruption, I think these principles are about embracing it for competitive advantage, these ecosystem thinking principles.
Kumar: The permaculture principles are a great reference to how natural systems can work for the production of food in a more sustainable way. Applying those to business systems makes a lot of sense because we want our businesses to be sustainable, to produce things of value that people consume, and to do so in a way that's sustainable for the long term.
Anything else to add, Glenn, before we sign off?
Glenn: We're in a new world. There's a lot of disruption, but if you pay attention, you can be very successful.
Kumar: We will be coming back in a month with a new spin on something else XSCALE-related. We don't know what it is yet, but rest assured, we hope it will be valuable to all of you. Thanks for watching and listening, and we'll see you in about a month. Bye-bye.
Glenn: Bye.
